Taking those initial steps to buying your ﬁrst home can be exciting and daunting all at once. Here are some of the top things to consider before you purchase:
HOW MUCH DO YOU NEED FOR A DEPOSIT?
As a rough guide, aim to save 20% of the purchase price, plus enough to cover additional costs. If you borrow more than 80% of the purchase price, you may have to pay Lenders’ Mortgage Insurance (LMI). This is an insurance that protects the credit provider from the borrower(s) not being able to repay the loan.
But don’t be discouraged if you haven’t been able to save 20%, there are loans available for up to 90% and 95%, which could help you get into the market sooner!
HOW WILL YOU BALANCE WHAT YOU’RE ABLE TO BORROW WITH HOW MUCH YOU CAN REALISTICALLY REPAY?
It’s important from the start to only borrow what you need and can afford. Careful budgeting is needed in the first stages of applying for a loan so that a projection can be made to determine your spending requirements moving into the future.
AM I ELIGIBLE FOR ANY GOVERNMENT GRANTS OR ASSISTANCE AS A FIRST HOME BUYER?
State and Federal government grants and incentives are changing all the time for First Home Buyers depending on buying new or established, and also depending on your budget. Check with the relevant government bodies as to what’s available for you situation.
HOW DO INTEREST RATES WORK?
Depending if you apply for a fixed or variable rate on your home will depend what charge is imposed on you for borrowed money.
A Variable Rate goes up and down, which is at the lender’s discretion, so there is never any certainty. However, you do have the ability to make extra repayments to pay it off quicker and flexibility to sell with no penalty.
A Fixed Rate is a locked interest rate where you can keep it constant for a period up to 5 years. The benefits of this are you know exactly what you are going to be paying in that period. However, you don’t have the chance to benefit from falling interest rates and you may not be able to pay extra into your home loan.
CAN YOU USE THE BANK OF MUM AND DAD
For many first home buyers, mum and dad play a crucial role in gathering funds to contribute to their deposit. It’s important to differentiate between gifting money and being a guarantor.
Gifting – Parents are able to give any sum to their children to contribute to the loan. It must be a gift, not a loan with interest charged.
Guarantor – S parent becomes a guarantor to the loan and a co-borrower if their child defaults on the loan. The lender could ask them to stake over the repayments.
Please note these are just ideas and is not financial advice, please seek specific guidance from a licensed financial planner like our friends over at Astute Brisbane Central. Want more advice on investing in property in Brisbane? Contact us via the form below.