Don’t be alarmed if you are a first home buyer and feeling overwhelmed. Even the new terminology requires plenty of bandwidth to get your head around; conveyancing, offset accounts, title search, contract of sale, negative gearing, disbursements…… Luckily, our friends at iBuildNew are experts when it comes to first home buyers and they have put together a list of 10 helpful tips when it comes to financing.
For most Australians, deciding to build your first home is going to be one your largest financial occasions. And for many young Australians, their new dream home wouldn’t have been possible without the first home buyers grant. It is easy for emotions to take over but you need to be mindful that the risks are high if you jump head first into the property market without the right financial research and planning as your foundation.
First things first: Saving for your new home
- The general rule of thumb in Australia is that you will require approximately 20% of the total house price saved to use for your deposit. However, in some circumstances, you can actually borrow with less than 20% deposit saved.
- There are a number of other costs involved outside of the actual purchase price such as bank and government fees.
- Although minimal when compared to the cost of your home, you will also need to set aside savings to cover the legal fees incurred for the conveyancing of your home – this may include such things as property searches, contract of sale review, building permit reviews and disbursements.
- And don’t forget to check whether you are eligible to receive the First Home Buyers Grant.
Consider getting a personal Mortgage Broker
- Mortgage brokers specialise in home loans. Their core role is to act on your behalf when negotiating with financial institutions for your home loan.
- To many, it can seem trivial but they are experts in this field and can be a trusted aid when you are making one of the biggest financial decisions of your life.
- The key point to note is that they have to be licensed. You can cross check brokers online at the ASIC (Australian Securities and Investments Commission) Professional Register.
- The lender will likely pay the broker a commission, and some will also charge you a fee. Be sure to check all of these costs before you sign anything.
- Some lenders don’t pay commissions to brokers, so the level of influence each one has varies between brokers.
Getting a pre-approved loan
- Another option is to deal with a bank or lending institution directly to lock in your mortgage.
- It is highly recommended that you seek pre-approval with the bank before you start looking at properties or talking to builders. Also known as conditional approval, pre-approval gives you peace of mind that the bank approves the loan in principle based on your current financial situation. It means that you have a good idea of what you can and can’t afford.
- If you are building a new home then you will require a construction loan.
- Your lender needs to see the council plans and paperwork such as the fixed price building contract.
- The reason for a construction loan is so that you can make draw-downs (progress payments) at various stages of the build. This is how you pay builders and it covers you so that you only pay the interest on the draw-down amount, only making your loan repayments on the amount currently being used.
- In most cases, during the build period, the loan repayments are interest-only. And once the build process is complete the loan switches over to standard repayment arrangements.
Variable and fixed rate loans
- These are the two types of loans available in Australia.
- A variable interest rate loan will change over time. The changes are based on many external factors such as the cash rate. Where you benefit with a variable rate is if the rate drops you can make additional payments, speeding up the process of paying off your mortgage.
- A fixed rate loan has a rate that is locked for an agreed period of time, generally between 1-5 years. You’ll know exactly how much you need to pay over that period making financial forecasting easier for you.
Did you know that Titlexchange are re-writing the rule book when it comes to conveyancing? We conduct your property and land title transfers online with real lawyers. That equals a more streamlined settlement process with fewer delays and more transparency around price. You should find out more.