First Home Buyers Guide

Buying your first property is a huge commitment. At Positive Home Loans, we’ll provide you with all the information you need to make buying your first home the best decision you’ve ever made.

Whether you’re starting out with an investment property or purchasing a home you’ll live in now, our mrotgage brokers will guide you through each step.

Moving from Renting to Owning

Whether you're considering buying your first home because you're planning a family, or you’re just ready for the security and stability of a place that’s all yours, it’s a big decision.

To help you decide if it's time to own your own home, rather than renting for a bit longer, here's some of the key points you'll want to consider:

Renting versus buying a home

This table compares the pros and cons of renting and having a mortgage, to help you decide what's right for your personal and financial situation right now:

Rent Own
When the property value increases, your rent can rise If the property value rises, the total value of your net assets increases. This means when you sell you're more likely to make a profit.
Building maintenance is taken care of by your landlord You need to budget for and arrange the building maintenance and repairs.
Rent is set for the term of your lease Repayments might fluctuate if you have a variable interest rate - you can fix the rate for a set term if you choose.
Paying rent provides you somewhere to live while you pay it Your mortgage repayments build equity in a valuable asset, increasing your net worth, especially in the longer term.
You have stable residence for the term of the rental contract You own the property until you decide to sell, and you can choose to live in it or rent it out.
There's limited opportunity to personalise the property Freedom to renovate, landscape, change the decor, outdoor areas, and make improvements to enhance your lifestyle, and increase the value of the property, subject to council approval.
No commitment to a location beyond the lease duration Owning a property ties you to that location, whether you live there or lease the property until you decide to sell. Selling or leasing can take more time to arrange.
Low start up costs - just bond and initial rent. You'll need a deposit or guarantee, plus the costs of buying (usually another 5% of the property purchase price).

Hopefully these considerations have given you a better idea of whether you want to buy a property to live in, an investment, or rent a bit longer before making the decision.

If it's definitely time for you to enter the property market with your first home, read on to find out what your next steps could be.

Know What You Can Afford

The first step in planning to buy your first home is knowing how much you can afford to spend.

To get a quick idea of your borrowing capacity based on your current income and current interest rates, use our borrowing calculator.

When you first sit down with a mortgage broker to work out how much you are going to borrow to buy your first home, you want to be completely honest and realistic about your spending habits.

While taking out a mortgage will affect your lifestyle, your broker is there to make sure that you aren’t left on a diet of 2-minute noodles to afford your new home.

Your mortgage broker will make sure you understand the financial obligation you're undertaking and the risks involved. For a given home price, calculate your monthly repayments here and make sure that you can comfortably afford them.

The First Home Owners Challenge

Once you have an idea of what your monthly mortgage repayments will be, we recommend that you take the first home owner's challenge.

Practice saving your expected mortgage repayment about each month for at least 3 months. Doing this will give you confidence when you do settle your first mortgage that you'll manage perfectly.

Remember you will need a little extra for council fees, insurance, and maintenance that might come up.

Now that you've taken the challenge, you know exactly what it's going to be like as a home owner, and you're ready for more information about preparing for your first home loan pre-approval.

Understand Your Credit Rating

When you apply for any finance product, including a home loan, the lender will check to see if you have a good credit history. When they check your credit report, they will see what finance products you may already have, and any serious payment defaults.

Your mortgage broker can do a credit check for you, without placing a record on your credit file. They'll be able to give you a clear idea of the loan types you'll be eligible for, based on your credit rating and current financial obligations.

Saving and Your Deposit

Facts About You Need to Know About Your Home Deposit

  1. Most Lenders require a minimum of 5% of the property purchase price as a deposit.

  2. If you can save a 20% deposit, you will avoid the costs of Lender’s Mortgage Insurance (LMI)

  3. A guarantor may be able to help you to reach the 20% threshold so you can avoid the LMI.

Saving a bigger home deposit means that you won't need to borrow as much upfront, so you'll have lower mortgage repayments.

With a proven successful savings history and a bigger deposit, you'll also have a wider range of home loans to choose from.

In addition to saving up your deposit, you’ll need a bit extra (usually 5%) for the stamp duty and other one-off costs.

Using our calculators, you can get a rough idea of how much you'll need to save for stamp duty, and also how long it will take you reach your savings target for your first home.

Pay Zero Deposit using a Guarantor

If you have a family member who is in a position to help you purchase your first home, they can provide security in the form of a guarantee over their own property that acts as your first home deposit.

This means that once you have a small deposit and enough saved up for purchase costs, you can look at buying your first home sooner than if you were buying on your own.

You will still need to be able to meet all of the loan repayments by yourself.

Who can act as a guarantor?

A guarantor is usually an immediate family member, such as a parent, sibling or grandparent. Some lenders may extend this to include an extended family member or ex-spouse - it depends on the lender and the individual circumstances.

When should I consider using a guarantor?

If you have an income high enough to make the repayments, but you don’t have enough deposit saved, a guarantor can help you to purchase a property.

The amount of the guarantee will vary from lender to lender, depending on the exact loan you choose, usually starting from 20% of the loan amount.

What are the obligations of the guarantor?

A family guarantor signs your mortgage contract, to pledge their property as security for your guarantor home loan.

The risk that the guarantor takes is that in the event that you do default on your mortgage, they could be liable to pay the amount specified in the guarantee.

If you take out a guarantor home loan, it's important that you get the right insurance cover to protect your guarantor, and that each party seeks independant legal advice before signing the contract.

The guarantor will be released from the contract one you've built up enough equity in the property.

Invest, or Owner Occupy?

You don’t have to live in the first home that you purchase.

In fact, it might be a really smart move to purchase an investment property, and build equity while renting it out. Then when you’re ready to purchase a home to live in, you’ve got a head start.

A few reasons to buy an investment property as your first home purchase:

  1. The areas where you can afford to buy are a long way from where you work, or in an area where you're not keen to live right now.

  2. You want to buy a family home in the future, but that' still a few years away. It wouldn’t make sense to pay for extra space you don’t need right now. Buying a smaller investment property, you can build equity for your future home, with a mortgage that's affordable now.

  3. Rather than having housemates or taking in boarders, you can rent out a smaller property and continue to live on your own terms.

  4. Buying an investment is a good idea if you can't commit to a location, whether it's because of work or you're just not 100% sure what the future holds right now.

  5. You get a ‘practice run’ at home ownership, finding out what’s involved with a commitment smaller than you’ll eventually make to buy a family home.

  6. The focus is the return on investment, so it's not as emotionally charged as a home you live in. As long as your rent covers the mortgage and expenses, you’ll able to ride the market highs and lows and come out ahead.

  7. Property investment is far less volatile than stocks. You’re in for the long term, so you can just relax and focus on building up equity towards your future.

  8. You have an asset you can comfortably afford, and that you can see.

  9. You can continue to live in the area you want to be in right now.

Can’t afford it on your own? Consider Co-Ownership

If you have a friend or family member who has similar investment philosophy and objectives and a similar appetite for risk, you may consider co-ownership as a real option towards owning your first property.

You’ll need a lawyer or solicitor to structure an agreement appropriate to your situation. This will ensure that each individual's contributions and ownership rights and responsibilities are clearly outlined.

If you’re keen to team up with a like-minded applicant, speak to a Positive Broker today about how we can help you to find the right Home Loan.

How Can a Mortgage Broker Help?

Using a Mortgage Broker allows you to benefit from their experience and expert advice, as well as getting a range of home loan quotes from a selection of lenders. This means you can choose the most appropriate home loan for yourself, giving you a better chance of comfortably meeting every requirement of the loan contract.

Your mortgage broker will use their existing relationships with lenders to negotiate a favourable loan for you. They will guide you through the complex loan process, assist with preparing the necessary documentation, and present the loan application to the lender in a professional format.

Positive Home Loans will take the time to understand and assess your needs, using their expertise and experience to advise you of which lenders fit your requirements but also which lenders offer the best chance of approval.

Our Mortgage Brokers maintain professional memberships with the Mortgage Finance Association of Australia (MFAA) and the Finance Brokers Association of Australia (FBAA). Their services are provided in line with the highest ethical standards, under the MFAA Code of Practice.

In addition to these memberships, our mortgage brokers have accreditation with each lender that we use, so they are in the perfect position to offer comprehensive advice and professional assistance.

Our Mortgage Brokers have personal experience in the local home market and own investment and residential properties in South Australia. Combining this with their extensive professional expertise, they are positioned to provide personalised, practical, specialised support throughout the purchase process.

Applying for Loan Pre-approval

A home loan pre-approval give you an exact budget to work to, and its valid for 3-6 months. It means when you find your first home you're ready to move on the purchase straight away.

When you’ve chosen the Home Loan that is right for your needs, and you are ready to apply for pre-approval and start looking for a property, your mortgage broker will be able to prepare the application and send it to lenders in the most favourable light.

To apply for a pre-approval, you'll need

  • Personal identification: usually 100 points of ID, such as Driver's licence, Medicare card, passport.
  • Income information
  • For employees, this is usually your 2 most recent payslips, showing 'year-to-date' income. You may need an ATO Notice of Assessment and Payment Summary also, depending on your occupation.

    If you're self-employed, you'll need 2 years business and individual tax returns.

  • Employment history
  • Assets and liabilities: including your personal assets, any vehicles, shares, credit card limits or debts
  • Residential history
  • Marital status
  • Dependants or children
  • Credit history
  • Evidence of genuine savings: usually your most recent 3 months bank statements

A stable employment and residence history will provide a better profile to the lender. Your broker can advise you on whether you can get a good deal now, or whether it might be wise to wait for 6 months or so to improve your loan options.

When you are ready to apply, your broker will handle the whole process. Once the application is submitted, it usually takes 3-5 business days for the lender to complete the assessment. Your broker will keep you up-to-date at each stage as your application progresses.

To apply for a home loan contact one of our home loan brokers on 1300 366 287, or fill out an online application form, and one of our home loan experts will be in touch very soon to start the process for you.

Definitions you should know

Don’t be daunted by the barrage of new terminology you might come across when you start looking into purchasing a property. There’s a plain-English breakdown of the more commonly used terms here, so you’ll know exactly what’s being referred to:

Comparison Rate
Interest + fees of your home loan. Comparison rates were introduced so you can accurately compare the true costs of products between different lenders. Otherwise, a lender could advertise a low-interest rate, but then sting you with high fees to make up the cost of the loan.

Assets
Everything that you currently own, like real estate, your bank accounts, cars, home contents, superannuation and shares.

Covenant
A condition on the use of or the nature of the structures or buildings erected on a piece of land. Your conveyancer will inform you if there are any covenants over the land you’re considering, and whether they can be removed before you purchase the property.

Equity
If you’ve borrowed money to buy an asset, the equity is the difference between the value of the asset and how much you still owe on the loan you got to purchase it.

Offset account
this is a bank account linked to your home or residential investment account. The balance of the offset account reduces the amount of interest payable on the linked loan. You can access the money that’s in the offset account.

Redraw facility
If you manage to pay off more than your scheduled repayments, a redraw facility means that you can access this money should something unexpected come up that means you need the extra cash.

Fixed
This term refers to the interest rates (the cost of borrowing money) that apply to your home loan repayments. If you choose a fixed interest rate, this means that your periodic repayments will always be exactly the same amount. Interest rates are usually fixed for 2-5 years at a time.

Variable
A variable interest rate loan will have weekly, fortnightly or monthly repayments that can go up or down. The interest rate that you pay will vary according to the Standard Variable Rate determined by the Reserve Bank of Australia.

Equity
This is the extent that you own your home: the difference between the balance of your home loan, and the market value of your home at any point in time. Over time, most properties appreciate - increase in value - helping to increase the equity or ownership.

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