30 Aug 2018

The process of buying a property as a “first home buyer” (FHB) can be daunting at best, but it doesn’t have to be. Here we break down the top 10 questions that first home buyers ask us.

HOW MUCH DEPOSIT DO I NEED TO BUY AS A FIRST HOME BUYER?

Having a deposit of 20% of the purchase price is ideal but not possible for all first home buyers. At the very minimum, having a 5% deposit plus funds to cover associated costs is the starting point. Anything less than a 20% deposit will incur a Lender’s Mortgage Insurance (LMI) charge.

Alternatively, the state government initiative, Keystart, will accept a deposit of merely 2% plus fees, but this option is only available to those meeting certain criteria relating primarily to the applicant’s income level and the purchase price of the property. The fees associated with this product are usually higher than a conventional lender.

For a purchaser with no deposit, the option available would be a guarantor loan. This entails a family member, usually a parent, offering up their own property to be used as additional security for the loan.

WHAT IS LENDER’S MORTGAGE INSURANCE?

Lender’s Mortgage Insurance, or LMI, is a one-off charge which covers the lender, not the borrower, if they are unable to meet their loan repayments. It’s applicable for loans where the deposit was less than 20% and is calculated based on the loan amount and loan to value ratio (LVR).

WHAT ARE “GENUINE SAVINGS”?

Genuine savings is a term used by lenders to identify viable funds held by a loan applicant. Whilst all lenders have their own policy, it is usually 5% of the purchase price that have been held by the applicant for three months or more.

WHAT DOCUMENTATION DO I NEED TO PROVIDE FOR A HOME LOAN APPLICATION?

To submit a home loan application, your mortgage broker will need the following:

  • The Contract of Sale for the property being purchased;
  • Evidence of your current income – payslips if you are PAYG or two years Tax Returns if you are Self-Employed;
  • Bank Statements evidencing genuine savings and funds to complete;
  • Statements of any current debts such as credit card and personal loans; and
  • Photographic ID such as drivers’ licence and passport.

Depending on your own unique scenario there may be other items a lender may require, but the above checklist is the basic starting point for what you will need to provide.

ARE THERE ANY OTHER COSTS INVOLVED IN PURCHASING A HOME?

There are costs associated with the purchase of a property, the major one being stamp duty. Under a $430,000 purchase price in WA there is no stamp duty payable and between $430,000 and $530,000 it is scaled. For purchases above this, it is fully payable.

Additionally, buyers should factor in settlement agent fees as well as adjustment of council and water rates. Pest and building inspection fees should be allowed for plus mortgage application fees and LMI if applicable. Your Mortgage Broker and Settlement Agent will be able to confirm what additional expenses will be incurred.

HOW LONG DOES A LOAN APPLICATION TAKE TO GET APPROVED?

Generally speaking, you can expect a loan application to be approved within approximately two weeks, give or take. It may take longer to secure an approval in an instance where an applicant has a more complex scenario that requires additional assessment, or the lender having slower than normal service levels.

WHAT IS AN OFFSET ACCOUNT?

An offset account is a savings account linked to a home loan. The interest earned by the money in the savings account offsets or reduces the interest due on the loan.  For instance, if you have $10,000 in your offset and have a home loan of $300,000, you will be charged interest on a $290,000 loan balance.

HOW DO I APPLY FOR THE FIRST HOME BUYER’S GRANT (FHOG)?

As part of the loan application, your Mortgage Broker will help you fill out the FHOG form and submit it via your lender of choice for processing. The proceeds of the grant will be collected at settlement and used to complete the purchase and any stamp duty exemption will also be applied. Apart from signing the FHOG form you will also need to provide clear ‘Category One’ identification, which includes a passport or birth certificate.

WHAT DOES A SETTLEMENT AGENT DO?

A Settlement Agent, or Conveyancer, manages the process of transferring the ownership of a legal title of land or property from one person or entity to another. A Conveyancer manages both the sale process or the purchase process of property and ensures that their client meets all their legal obligations during the process and that their rights are also protected.

WHY SHOULD I USE A MORTGAGE BROKER INSTEAD OF GOING STRAIGHT TO MY BANK?

Unlike a singular bank, a Mortgage Broker has access to a suite of different lenders and products. They can negotiate with a lender on the buyer’s behalf ensuring a superior outcome by being the clients advocate. Apart from doing the major leg work for you and taking the pressure off during an emotionally charged and stressful transaction, a Mortgage Broker will usually operate outside normal business trading hours offering a more flexible and accommodating service.

Still have more questions you need answering about buying your first home? Of course, you do! Blackburne Mortgage Broking have assisted hundreds of first home buyers with their property purchase, making them the preferred broker in Perth for first time purchasers.

For more information Download our Free eBook – The First Home Buyers Survival Guide, a great resource to have on hand when buying your first home.

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