Moving from renting to owning a home is one of the most significant and exciting life changes an Australian can make! Purchasing your first home can also be an intimidating prospect, but it doesn’t have to be stressful if you do your research first.
Therefore, to get you started on your home buying search, here are the seven most essential terms every first home buyer should know according to the best mortgage broker Sydney.
1. Stamp Duty
In Australia, all property buyers must pay the government tax called stamp duty, which the buyer pays in the case of real estate. When buying a home, it’s crucial to include stamp duty in your budget.
Stamp duty is usually due within three months of contract exchange or before settlement, depending on the contract’s timeframe.
Stamp duty varies by state and is usually determined as a percentage of the total purchase price, and you may be eligible for a concession depending on your certain circumstances. The following factors may determine the amount you pay:
- Whether you’re buying a home or an investment property,
- Whether you’re a first-time house buyer or not,
- Whether you’re buying land, an existing home, or a brand-new home,
- Whether you’re a domestic or international buyer.
2. First Home Loan Deposit Scheme (FHLDS)
You should check to see if you qualify for the First-Time Home Buyer Grant. You could receive a grant worth thousands of dollars if you are eligible. However, the actual amount depends on where you reside and the property you purchase. The FHOG is only available once on your very first property purchase; once you own a home, even if it’s an investment property and you don’t use it, you’re no longer eligible for the grant.
3. Borrowing Power
Borrowing power, often known as ‘borrower power,’ refers to the amount of money you can borrow, dependent on your financial status. You can acquire a bigger credit limit or loan amount if you have more borrowing capacity.
Several factors determine your borrowing power. In general, a person with a good credit history, a healthy deposit (cash or equity from a property), and a low debt-to-income ratio has more borrowing ability. Interest rates and loan terms, among other things, can affect your borrowing ability.
Different lenders and finance brokers employ distinctive formulas to determine your borrowing ability. Still, several helpful online calculators may help you estimate how much you might be able to borrow.
4. Home Loan Deposit
Your initial contribution to the price of a home is known as a home loan deposit and denotes that you possess a share of the property. A larger down payment may mean you don’t need to borrow as much money, which means you’ll pay less interest over the length of your mortgage. It’s also possible that you’ll be able to pay off your loan sooner.
The larger your deposit, the more your mortgage broker may be able to get borrowed from banks and lenders. For example, while you can get a loan with a 5% or 10% down payment, you’ll have to pay lenders’ mortgage insurance if you had less than a 20% down payment in the past. However, this has changed since establishing the First Home Loan Deposit Scheme (FHLDS), which allows qualifying first-time home purchasers to purchase a home with just a 5% deposit and avoid paying lender mortgage insurance.
5. Lender Mortgage Insurance (LMI)
Lender Mortgage Insurance (LMI) is a type of insurance that protects the lender in the event that you, the borrower, default on your mortgage. The money is paid upfront or rolled into the loan, and it is repaid over time with interest.
If your home loan deposit is less than 20% of the total value of your property, LMI is required as part of the application. Once your LVR exceeds 80%, you’ll be considered high-risk and will be required to pay LMI.
Keep in mind that this product is designed to protect the lender rather than the borrower. If you want to avoid LMI but haven’t saved up your deposit, you could be better off waiting.
6. Loan-to-Value Ratio (LVR)
The loan-to-value ratio simply said, is the amount of money (loan) you’re borrowing concerning the property’s value. Lenders utilise LVR to estimate your risk when evaluating your application. Because you pose less risk to the lender with a lower LVR, you may be eligible for a cheaper rate, more significant ongoing discounts, and better package packages.
If the original valuation and purchase price differ, the lender will usually take the lowest of the two figures. However, it is preferable to have an LVR of 80 per cent or less if possible. In addition, you will be able to avoid paying Lenders Mortgage Insurance if your LVR is 80 per cent or less (LMI).
7. Offset Account
A transaction account linked to your house or investment loan is known as an offset account. The funds in your transaction account are applied daily to your remaining loan debt, lowering your interest payments.
You can put money into the mortgage offset account at any time, and the account’s balance is used to figure out how much interest you’ll have to pay on your house loan. Only the difference is subject to interest. In essence, every dollar in your offset account saves you money and reduces the length of your mortgage.
An offset account might provide more flexibility when shopping for house financing and is worth considering with your mortgage broker. The benefits, however, will be determined by the interest rate, costs of comparable loans, and the amount of money you want to keep in your offset account.
8. Mortgage Broker
If you don’t already know, a mortgage broker is your key to success as a first-time homebuyer. A mortgage broker is also sometimes referred to as a financial broker who is both a ‘go-between’ between a home buyer and the lender.
Mortgage brokers and finance brokers negotiate with lenders on your behalf and help you secure a loan. Mortgage brokers are financial brokers who specialise in arranging house loans or loans for investment properties.
From loans for small businesses, home loans, investment properties, debt consolidation, personal risk insurance, life insurance brokers and everything in between, with a mortgage broker, you can sit back and relax while they do the running around to find the perfect fit for you.
So, what are you waiting for? Get in touch with a reputable finance broker now.
