Buying your first home can be an absolute minefield of jargon and acronyms apparently all determined to trip you up. It’s almost enough to keep you renting! Here’s a rundown of some of the things you’ll need to consider.

Government grants

Buying a house is expensive. Fortunately, state and federal governments offer grants that can help cover some of the costs.

Perhaps the most well-known of these is the First Home Owner Grant. A one-off payment of $10,000 is available to buyers who meet the eligibility criteria ($20,000 for some regional builds). To determine your eligibility, visit www.firsthome.gov.au.

The Federal Government has also introduced its First Home Loan Deposit Scheme. Buyers can purchase a home with just a 5% deposit and the government will guarantee the other 15%, and lenders mortgage insurance will be waived. The scheme starts on 1 January 2020.

Stamp duty is one of the biggest costs home buyers face. Stamp duty is a tax applied to certain property transactions, including when land is sold, transferred or leased, which the buyer has to pay. The amount of stamp duty depends on the value of the property and the amount for which it is sold, transferred or leased for and is calculated on its market value or the price paid by the buyer. Victorian buyers purchasing their first home on or after 1 July 2017 may be eligible for exemptions or concessions from duty as listed on the State Revenue Office website.

Mortgage brokers

A mortgage broker acts as a go-between, dealing with banks and lenders to arrange your home loan. They can help explain the various loans available, calculate how much you can afford to borrow and manage the application process all the way through to settlement day. Some mortgage brokers receive a commission from lenders, while others get paid a standard fee regardless of which loan they recommend to customers. Others will charge customers a fee directly. A broker can make the process of buying a home less stressful – but be sure to check they are licensed to provide credit advice on ASIC Connect.

Getting a loan

Your lender will assess your loan and your finances to estimate how much you can afford to borrow. It’s important to sit down and work out how much you can comfortably afford by measuring your income against expenses. Don’t over-commit. A rule of thumb is that no more than 35% of your gross monthly income should go towards servicing your mortgage.

Remember to consider how your future plans, like a change in expenses, could impact your borrowing capacity. Factor in interest rate changes and how a rate rise could impact your ability to meet repayments, the fees involved in buying a home (like stamp duty and solicitors’ fees) as well as ongoing payments like council rates, insurance, body corporate fees and utilities.

Pre-approval

Before applying for a home loan, buyers can apply for pre-approval. Pre-approval is an indication of how much you could borrow based on the information provided to your lender. While it is subject to terms and conditions, pre-approval is basically a green light on your home loan even if you haven’t yet chosen a property. They give you the confidence of knowing how much you can borrow, and allow you to act quickly when you do find a property you like. Most pre-approvals are valid for three months and to get it started you’ll need to provide some documents to your mortgage broker, such as proof of income and proof of existing loan agreements and credit card limits.

Lenders mortgage insurance

Also known as LMI, this helps buyers enter the market sooner by allowing them to borrow a higher percentage of a property’s value. By financing a higher proportion of the purchase price, lenders take on more risk in the event the buyer fails to meet mortgage repayments and the property needs to be repossessed. Therefore, buyers pay LMI to insure the lender against this loss. LMI does not offer any cover to the buyer. The bigger the percentage of the property’s purchase price that the buyer has to borrow, the greater the amount they pay on insurance. If the deposit is less than 20 % of the value of the property, buyers will need to factor in LMI. This can be paid as a one-off lump sum at settlement but can also be added into the loan amount and paid off over the life of the loan. A broker will be able to assess which path to take.

During the build

If you build a home, you will be expected to make payments at certain points. These are known as ‘progress payments’ and are made each time your builder completes a set stage of the build, including base, frame, lock-up and fixing. These payments will be outlined in your contract. Your builder will send you an invoice which you provide to the bank, and the bank will make the payment on your behalf. You will also begin making payments towards your loan after settlement, so remember to factor this into your expenses if you are renting whilst building.

– Information courtesy MY EXPERT