7 Things a First Home Buyer Needs to Know

Buying your first home? Here are 7 things you need to know.

Bigger deposit, better options

While some lenders can offer low-deposit loans for less than 5 percent of the purchase price, saving around 20 percent can offer you big benefits:

• Access to a wider pool of lenders and products

• You need to borrow less money overall

• It’s a clear sign to potential lenders that you’re good at managing money.

If you’ve saved less than 20 per cent there are you will most likely have to pay Lenders Mortgage Insurance (LMI). This is an insurance that protects the lender, not you, and adds more fees - and potentially, another layer of assessment of your suitability because LMI providers are separate businesses and often have quite strict policies.

Stay tuned for details of the Federal Government’s new First Home Buyer Deposit scheme – this could change the playing field in this space.

Know your credit rating

Lenders use your credit rating to judge whether your circumstances are suitable for a loan – it’s a demonstration of your financial character. Some non-bank lenders will review your financial situation more holistically, so your credit rating is not always the only defining factor when you apply for a loan. But it does matter. Credit scores are closely linked to the success of home loan applications, so understanding what makes up and affects your credit rating is important for any homebuyer. Get hold of a copy of your personal credit file and review your own credit rating - including any defaults listed against your name. There can be mistakes on your report - if you pick up on them you can request they get altered.

You can easily get a free credit score online. You can Google it or check the Australian Government’s Money Smart Website for quick links or go to www.mycreditfile.com.au.

Work out what your bottom line looks like

You probably know where you want to buy and how much you want to pay - now it’s time to work out how much you can reasonably borrow. You’ll need to take the various home loan fees into account, like stamp duty, legal fees or Lender Protection Fees (LPF). You should also think about your current situation, your income and expenses, any dependents (kids or parents), and any lifestyle changes you can see coming up – like a job change or starting a family. Think about what’s likely to happen in the near future - as well as how it is right now.

Your broker will be able to assist you here, as different lenders have different requirements – so the loan you qualify for can vary substantially from lender to lender.

If the home loan doesn’t fit, don’t sign up for it

There are more things to consider with a home loan than just the interest rate. There are redraw and offset facilities, refinance costs, repayment flexibility, fixed or variable interest rates, loan terms and fees to consider. Your broker will research the loan options available and examine them all. (It’s much, much easier if you get an expert on board to help you out!)

Research, research, research

Did we mention research? When it comes to buying property, and in fact any investment, often the difference between a diamond in the rough and a dodgy deal is simply the buyer’s level of market knowledge. The more you know about the property market and where you want to buy, the better. Look at average prices over the last decade, whether it’s near to shops, schools and transport, potential rental returns, etc. You want to be sure the area has what you need in terms of both lifestyle now and future growth opportunity.

Potential investment

Speaking of growth opportunity, remember that sometimes the best locations for property growth are not the ‘hot’ suburbs but the suburbs next door. These often provide a cheaper entry point and greater potential for development.

Likewise, a brand new or newly renovated property will generally charge a premium for the look. An existing, lived-in home may not look as pretty, but it can be much better value and lets you add your own personality to it. You can create equity by improving a home, and that is a common approach for first home buyers.

If you don’t have the finance, don’t make a bid

There’s no cooling-off period at auctions, once you’ve made an accepted bid that’s it. Buyers without finance approval can find themselves in serious strife if they sign a sale contract.

Stay on the safe side, make sure you hold a letter of finance approval from your lender. That way you can negotiate your purchase price without worry.

If you're a first home buyer ready to enter the market, keep these hot tips in mind. They can help you be a savvy home buyer. And of course, talk to us to help walk you through the process towards first home ownership.