Buying your first home

By You and Money

If you’re finally ready to take the plunge and buy your own place, you may be eligible for the First Home Owner Grant. This grant is a one off payment from the Australian Government.

Conditions and payment of the grant vary in each state and territory, so check the details specific to your location at www.firsthome.gov.au.

Deposit and borrowing amounts

In general the larger the deposit you have, the easier it is to get a mortgage and the less you’ll need to borrow. If your deposit is less than 20%, you usually have to pay mortgage insurance too.

To start getting your deposit together it’s important to have a clear savings plan.

The amount you can borrow depends on a number of factors:

  • what you’re earning
  • how much deposit you have
  • your other financial commitments, such as car repayments, credit cards, personal loans and living expenses.

Your bank or credit union will be able to work this out and advise you. Remember that the amount you can borrow will also depend on the mortgage lender you choose, so it pays to shop around.

Purchasing and borrowing expenses

There are also other costs involved in buying a home – you’ll need to factor in:

  • stamp duty
  • pre-purchase inspection
  • conveyancing and legal fees
  • registration of title
  • loan application or establishment fees.

Stamp duty is expensive and can add a lot to the cost of buying a property. To work out what you might have to pay in stamp duty, use the stamp duty calculators at www.mozo.com.au

Choosing a home loan

When you’re choosing a home loan, it’s always best to look at different lending options to find the one that suits your needs and circumstances. The interest rate is likely to be a big factor in determining what your home loan costs and repayments will be. But remember that fees and other loan features can make a real difference to the amount you actually pay.

Interest rate options generally include:

  • variable
  • fixed
  • combination of variable and fixed (split rate).

Some lenders also have an introductory or ‘honeymoon’ rate for a set period of time.

Home loan options include:

  • standard loan (principal and interest)
  • interest only loan
  • line of credit loan

Your mortgage lender will be able to explain these options so you can choose the one that suits you best.

Offset and redraw facilities

Home loans also offer a range of features including offset accounts and redraw facilities, and you’ll need to decide if these features are important to you.

  • An offset account is a savings account linked to your home loan account. The money in this account is deducted from your home loan, reducing the interest you pay.
  • A redraw facility gives you access to the money that you’ve paid into your home loan and can achieve the same result as an offset account. Some financial institutions might charge you a fee or set a minimum amount when you use this facility.

Both can reduce the interest you pay on your home loan balance. Check the conditions that apply to the redraw facility or offset account and choose the option that best suits your needs.

Comparison rates

A comparison rate is a way of showing you exactly what a loan will cost you. All credit providers must show a comparison rate on home loans as an interest rate or repayment amount. Here’s how it works.

Interest rate + main fees and charges = comparison rate

When looking at comparison rates, check that you’re comparing loans for the same amount and term (for example, they all apply to a $150,000 loan over 25 years).

Save on your mortgage

There are a few things you can do to help pay off your home loan sooner.

  • Shop around for the best possible home loan rate.
  • Make repayments weekly or fortnightly instead of monthly.
  • Make extra loan repayments whenever you can.
  • Save a big deposit.
  • Find a loan with either a redraw or offset facility.

Insurance

When you buy your home you’ll need to have home insurance. You should also consider contents insurance (although this is optional).

  • Home insurance covers costs associated with loss or damage to the building you own, and provides public liability insurance cover for injuries to third parties at your home.
  • Contents insurance covers costs associated with loss or damage to your possessions.

Selecting the right insurance for home and contents is important. Insurance packages and pricing can vary from provider to provider, so it pays to shop around.

For more home loan information, visit
www.moneysmart.gov.au/borrowing-and-credit/home-loans.

Steps to owning your own home

The following steps summarise the home buying process. Make sure you’re well prepared for each step before it happens!

  1. Start learning about the property market. Read local and metropolitan newspapers, check out websites and talk to people who know about property.
  2. Learn as much as you can about the suburb you’d like to life in, then start going to auctions and open for inspections so you get a good idea of the value of properties in that area.
  3. Talk to your bank or credit union and get a good idea of how much you can afford to spend. Then ask them for a loan pre-approval letter or certificate.
  4. Decide on a property you like and have it checked out by a property inspection company or a friendly builder. You want to be sure it’s in good condition, without major structural problems.
  5. Make an offer and negotiate a price. If you’ve done the background work and know what the place is worth – bargain hard!
  6. Pay your deposit – usually 10% of the purchase price if you buy at auction.
  7. Organise for your solicitor or conveyancer to manage the conveyancing (that’s the transfer of the property from the seller to you).
  8. Exchange contracts.
  9. Arrange home building insurance. It’s a good idea to arrange contents insurance too.
  10. Settle and take ownership of your property.

For more information on buying a home, check out the PC Home Buying Guide: www.policecredit.com.au/Img/PDFs/PC_Home_Buyers_Guide.pdf

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