FIRST HOME BUYERS GUIDE
SCA FINANCE
As a first-time homebuyer, it's natural to have a multitude of questions. Buying a home is likely the largest purchase you'll make to date, so it's important to gather as much information as possible before taking this exciting step forward.
You might be wondering what type of property you want, what to look for, which home loan to choose, and what kinds of assistance are available to you. Perhaps you also want to understand how properties are sold and the steps needed to complete the purchase
It's important to note that the property market is constantly evolving Loan products and interest rates offered by banks can change frequently, influenced by economic conditions and government policies.
Staying informed about these changes can help you make better decisions and potentially save you money in the long run
As finance brokers, the team at SCA Finance stays on top of current market trends, changes to government grants, and loan products from more than 35 lenders. This ensures that we can recommend the best possible approach to suit your unique goals and financial situation.
This guide will explain the home buying process so you can enter the market with confidence
Renting vs. Buying
PROS
Lower Initial Costs: Renting is typically cheaper than making mortgage repayments
Flexibility: It’s easier to move out of a rental property if you decide you want to live somewhere else
Fewer Responsibilities: Renters aren’t responsible for maintenance and repair costs.
CONS
No Equity Building: Renters do not build equity in an appreciating asset
Lack of Stability: Renting can be less stable as landlords can decide not to renew leases.
Restrictions: Renters may face restrictions on making changes to the property.
PROS
Equity and Investment: Homeowners build equity over time in an appreciating asset
Stability: You are not subject to lease agreements and landlord decisions.
Control: Homeowners have the freedom to make changes, renovations, and improvements
CONS
High Initial Costs: Homeownership typically involves higher initial costs, including a deposit
Less Flexibility: Selling a property or renting it out if you want to move can be a lengthy process.
Ongoing Costs: Homeowners are responsible for all maintenance, repairs, and associated costs.
Borrowing Power
As a general rule, the higher your income and the lower your living expenses, the more you will be able to borrow. Banks will ask you to provide detailed information about these main points before processing your loan application:
Income: This includes income from work, investment properties, family tax benefits, and share investments.
Liabilities: This includes credit card limits, personal loans, and car loans.
Ability to Absorb Higher Interest Rates: Lenders assess your ability to manage repayments if interest rates increase
Credit Scores: A higher credit score can improve your borrowing power
Personal Circumstances: Factors such as having dependents and the stability of your employment are also considered.der lowering your credit limits if possible
Our role as brokers is to calculate your borrowing power before the lender even receives an application. This provides you with a clear idea of the type of property you may be able to afford
Having money saved is crucial for a lender A bigger deposit is often more important than having a high income because it shows a pattern of positive savings High credit limits are seen as a red flag, as lenders assume you may spend up to your card limit at any moment. To a lender, a $20,000 credit card limit is essentially the same as having a $20,000 credit card debt Consider lowering your credit limits if possible.
Understanding your personal borrowing power at the beginning of the purchasing process is essential, as it will determine the type of property you can afford to buy. Improving your borrowing power could be the difference between having the funds to buy your dream home or being offered a reduced amount.
DEPOSITS
How much do I need to save before I apply for a loan?
Traditionally, lenders require a deposit amounting to 20% of the purchase price, plus additional fees and charges
For many Australians saving for their first home, this can be a substantial amount For instance, saving 20% for a property worth $600,000 means accumulating $120,000
Alternatives options for applying for a loan or meeting deposit requirements are also available from loan providers and the Australian government through various grants and incentives, making homeownership more achievable
It’s also increasingly common for parents to lend or gift their children money towards a house deposit. Even with financial assistance, you’ll likely need to create a savings plan and tighten your budget for a set period. Lenders typically look for a savings history of at least 3 to 6 months
As brokers, we have access to over 35 lenders across Australia. Many of these lenders require much smaller deposits, with some as low as 5% of the total purchase price. For a $600,000 home, this translates to a $30,000 deposit.
This makes saving for a deposit much more achievable for young couples or even singles aiming to enter the property market.
FINDING THE BEST HOMELOAN AND LENDER
With more than 2000Z+ options to choose from across banks, credit unions and financial service companies in Australia, there’s a lot of choice which can easily become overwhelming
Different options you may have heard of include:
Variable rate
Fixed rates
Honeymoon Rates
Redraw Facilities
VARIABLE RATE - The rate can go up or down depending on the state of the economy
FIXED RATE - maintains the same across an agreed upon period of time (often 1 - 7 years) and can be helpful if you’re worried about interest rates going up or you are looking for security with your repayment amounts.
HONEYMOON RATES - Banks provide discounts for a period on the interest rate, helping you to get acclimatised to borrowing and making repayments.
REDRAW FACILITIES - The lender will provide you with the minimum amount required for the life of your loan. Additional repayments above this amount may be able to be withdrawn at a later date.
We suggest considering all options and weighing them against your personal financial goals. Your broker is here to help you through this process.
LENDERS MORTGAGE INSURANCE
Lenders Mortgage Insurance (LMI) is a one-off payment made by the borrower at the time of loan settlement, designed to protect the lender, not the borrower.
You can expect to pay LMI if you borrow more than 80% of your home's value, meaning you have a deposit of less than 20%. LMI is organized by the loan provider.
To save on LMI, you can aim to save a larger deposit. The amount required for LMI will depend on several factors, including how much you borrow, your loan provider, and the size of your deposit.
There are a few ways to avoid LMI:
Save a Larger Deposit: Increasing your deposit to 20% or more will eliminate the need for LMI.
Use a Guarantor: Listing a guarantor on the loan with a second mortgage against their property can help you avoid LMI.
Government Grants and Incentives: Taking advantage of various government grants and incentives can also reduce or eliminate the need for LMI.
First Home Owners Grant
A national scheme which is funded by the state government, the First Home Owners Grant (FHOG) was introduced in 2000 as a way to offset the effects of GST on home ownership for people purchasing their first homes.
To receive the grant, you must be buying or building a new home valued at under $750,000 The payment is made to you as a grant and is separate to other exemptions such as stamp duty rebates.
Each state varies slightly on the specifics of the grant including the maximum value of a property which is applicable. In WA The grant is $10,000 or the consideration paid to buy or build the house if less than that amount.
Only one grant is payable per eligible transaction, so two people purchasing a house together may only receive one grant.
To be eligible, home buyers must be: applying as an individual or two joint applicants an Australian citizen(s) or permanent resident(s)* at the time they enter the loan at least 18 years of age earning up to $125,000 for individuals or $200,000 for joint applicants, as shown on the Notice of Assessment (issued by the Australian Taxation Office) intending to be owner-occupiers of the purchased property
First home buyers or previous homeowners who haven't owned or had an interest in a real property in Australia (this includes owning land only) in the past ten years.
PLEASE NOTE: ELIGIBILITY
THE MORTGAGE PROCESS
CONDITIONAL APPROVAL
Once you’ve determined what you can afford, completed all the required paperwork, and found a lender that suits your needs, the next step is to apply for conditional approval This is an agreement from a financial institution that they will lend you a certain amount of money once you find a property you want to buy.
FULL APPROVAL & CONTRACT OF SALE
Once you have found a home to purchase and your offer is accepted, you will enter into a purchase contract with the property owner. The lender will then complete a valuation to determine the market value of the property and ensure it is suitable as security for the loan. Pending this evaluation, the lender will issue full approval and provide the funds to purchase the property.
SETTLEMENT
Settlement generally occurs within 30-90 days of signing the contract of sale. During this time, your solicitor or settlement agent will meet with your lender and the seller’s representative to exchange documents On settlement day, your financial institution will transfer the owed amount to the seller, and you will take legal possession of your first home!
WORKING WITH A BROKER CAN SAVE YOU TIME & MONEY
We work with over more than 35 different loan providers, and have experience in applying for each of the different types of products they have available This saves you time in trying to understand all the different options available. We are obligated to help you find the best solution for your personal situation, where a bank or single provider is obligated to sell you the best option from their range of loan products. It costs you nothing to use a broker!
Brokers handle all of the paperwork on your behalf, helping to save any damage to your credit score by submitting applications incorrectly
At SCA Finance, we are with you every step of the way, from initial budget discussions and preapproval all the way to settlement. We understand that buying your first home can be a daunting process, so our team prides itself on being available to answer all your questions and provide consistent updates and guidance throughout your journey.
Ready to learn more?
Click here or email us at info@scafinance.com to schedule an initial consultation with a member of our team.
