Buying your first home doesn't have to be stressful.
That's why we've gathered the most frequently asked questions by our first home buyers so you don't get overwhelmed by all the things you DON'T know.
1. How much can I borrow?
How much you can borrow will impact all of the other decisions you'll need to make when buying your first home. So, determining your borrowing power should be your first priority.
A good lending specialist will be able to help you look at your expenses, liabilities & assets, and give you an estimate. Or, you could use our online calculators to get an estimate.
2. How much should I save before I buy?
You may have heard that you should aim to have a 20% deposit before you buy. This is because if you borrow more than 80% of the purchase price, you’ll have to pay lenders mortgage insurance (LMI).
While having a 20% deposit in the current housing climate means you’ll need a significant deposit, it can save you several thousand dollars in LMI.
If a 20% deposit seems unachievable, don’t panic. In many cases, you can include the cost of LMI in the total amount you are borrowing.
As for your deposit, some financial institutions will allow you to borrow up to 95% of the property value. At MOVE Bank, you may only need a 5% deposit as a first home buyer.
3. What is lenders mortgage insurance?
Lenders mortgage insurance (LMI) is a type of insurance which covers your financial institution if you default on your home loan. It also helps borrowers to get into the property market with a deposit of less than 20%.
To give you an estimate of how much LMI is likely to cost you, we recommend speaking with your MOVE home loan specialist.
4. What is a pre-approval?
Getting a pre-approval is one of the most important phases of purchasing your first home. In essence, a pre-approval locks-in the amount that you can borrow, subject to certain conditions and for a set period of time (usually 6 months).
Getting a pre-approval for your first home loan will mean that you will know exactly how much you can spend and will assist you in negotiating prices and making offers on a property.
5. What is a guarantor?
A guarantor is someone (usually a parent) who uses their property (or the equity in their property) as security, allowing a borrower to reduce the overall deposit required and avoid paying LMI.
Guarantors are especially useful for first home buyers as it can help borrowers get into their first home sooner.
6. Fixed or variable?
A fixed rate home loan means that you lock in an interest rate for a set period of time (usually 1, 3 or 5 years). At the end of the fixed rate term, the loan will usually change to the standard variable rate offered by the lender. While fixed rate home loans ensure that fluctuating interest rate rises do not affect you, this also means that rate drops won’t apply to you. Fixed rate home loans can also restrict features such as redraw facilities, extra repayments and break fees often apply.
If you decide not to fix your home loan, your interest rate will move with the changes in market interest rates. This means that your interest rate could rise and fall over the life of your loan, which may affect your repayments. Variable rate home loans are generally more flexible with your repayments, redraw facilities and offset options.
If you’re still unsure about which interest option is best for you, we recommend getting in touch with your lending specialist.
7. Am I eligible for the first home buyers grant?
As a first home buyer, you may be eligible for the First Home Owners Grant. As eligibility for the scheme depends on which state you intend to purchase in, be sure to check out http://www.firsthome.gov.au/ to find out how much you could be entitled to.
8. What is stamp duty and how much will it cost me?
Stamp duty is a tax imposed on legal documents usually in the transfer of assets or property. Like the first home buyers grant, stamp duty costs vary from state to state.
To find out how much stamp duty will cost you, take a look at our stamp duty calculator.
9. What is a comparison rate?
A comparison rate is a tool to help you identify the true cost of a loan. It is a rate that includes both the interest rate and the fees and charges relating to a loan, combined into a single percentage figure. When shopping around for a home loan rate, make sure you consider the comparison rate.
10. What is an offset?
A mortgage offset is a transactional or savings account which is linked to your home loan. The money that you put in this account will reduce the amount of interest payable on your mortgage.
For example: If you have a $260,000 home loan with $10,000 in your offset account, you will only be charged interest against $250,000.
By building up your savings in your offset account, you can cut years and thousands of dollars off your home loan.
11. What home loan features should I look out for?
When doing your home loan research, it's important to make sure you're comparing the features each home loan offers. Be sure to check:
- Does the home loan offer an offset facility?
- Can you make extra repayments?
- Can you make unlimited redraws?
- Will they charge any ongoing fees or early payout fees?
Every lender is different, so it’s important to make sure you’re aware of all of the features and potential fees. This information should be available on the lender's website which can make comparing products easier for you.
12. What is a contract of sale?
Once you’ve found the property you like, you can make an offer to purchase it. The agent will formalise your offer in the form of a contract for you to sign.
The contract sets out:
- The amount you are offering for the property
- The details of when you will pay your deposit
- The date of settlement
Before you sign the documentation, be sure to discuss it with your solicitor. Never sign any contract without seeking legal advice first.
13. What other costs are involved with purchasing my first home?
Buying a property involves more than just the purchase price of the property.
Other purchasing costs you should consider:
- Home loan application fees
- Stamp duty
- Legal fees
- Mortgage registration fee
- Building and pest inspections
- Moving costs
- Building and contents insurance (this is a condition of loan settlement)
Buying your first property is probably one of the biggest financial decisions you’ve made up to this point, so it makes sense to have someone in your corner that you can turn to for advice. That’s why it is important to get to know your lending specialist at the beginning of your home-buying journey.
First Home Buyers Club
We've designed a club to help first home buyers get into their first home sooner with exclusive access to discounts, tools and home buying resources. Sign up today: https://firsthomebuyerclub.mymove.com.au/
Introductory Offer for First Home Buyers
We’re offering first home buyers a discounted rate of 3.69% (4.00% comparison rate) on our First Home Loan for the first year of your mortgage^. With features that you’ll actually use and a market-leading rate, you can be sure you’re getting a great deal. Lock in our introductory offer today.
^Click for conditions. This blog post is for general information purposes only and is not intended as financial or professional advice. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product or other professional advice. You should seek your own independent financial, legal and taxation advice before making any decision about any action in relation to the material in this article. Railways Credit Union trading as MOVE Bank ABN 91 087 651 090. AFSL/ Australian Credit License number 234 536 | ABN 91 087 651 090.