One of the most confusing steps of buying your first home is finance. With hundreds of offers out there, multiple fees to pay, and deposits to arrange, it can get pretty daunting.
Who better to help us navigate through the maze of confusion than Kimberley Burke? Kim has been in the Real estate industry since 2004 and in that time has won multiple awards as an agent, established herself as a property investor and her team has just recently been named Top Five in Sales by REB's Women in Real Estate.
A first home buyer has access to a number of government schemes at the moment, one specifically called “The First Home Guarantee”, which gives first home buyers the opportunity to purchase a home with a 5% deposit and avoid paying Lenders' mortgage insurance, which is a massive saving. There are only limited spots available by the government to take advantage of.
When a deposit is paid, that amount comes off the purchase price. So, if you pay a 5% deposit and are buying a home of $500,000, you only need a $25,000 deposit saved instead of $50,000 if you were to pay the traditional 10% deposit. That is a substantial saving, plus the waiving of lender’s mortgage insurance, which could save you anywhere from $10k, up to $20k as well.
Another huge bonus is Free stamp duty on properties up to the value of $650,000.Which is another saving of approximately $25,000.You do pay a percentage of the stamp duty if you go and pay over $650,000.
Then you must add fees such as your solicitors or conveyancing (allocate approximately $2000) and pest and building reports (generally between $550 and $750).
Some banks can include this amount in the loan. But most of the time with your pest and building and solicitors fees, they'll ask you for that to be paid up upfront.
Usually, these fees are due on settlement, the day that you move into the property. Unless you have organised an extended settlement.
If an extended settlement is longer than
3 months, then they ask you to pay the stamp duty prior to settlement time.If you've got a 6-month or 12-month delayed settlement, you do have to pay the stamp duty within 3 months.
When arranging finance, the two main options are to go to a bank or a mortgage broker. A Mortgage broker can offer expert help from a professional who has an eye across a large section of the market and compares the rates from an entire panel of lenders to find the best deal suited to your circumstances.
Banks have a large selection of products and they can offer you package deals on other financial products, like credit cards and savings accounts. You may have a personal relationship as well.
There are basically 3 types of loan structures:fixed interest rates, variable interest rates, and Interest only.
If you go for a fixed term, that means that you are locked in at that interest rate for a certain period of time whether or not the interest
rates go up or down. If you are going to sell within a fixed rate period, there will be fees and charges that the banks will charge you.
A variable rate will fluctuate and go up and down with the interest rates set by the reserve bank. There are obviously fewer charges if you do decide to go and sell or refinance within your loan period.
An interest-only loan is a loan that you actually don't pay back. You only service the interest charges and your loan amount stays the same. Usually used more for an investment scenario as you are relying on the long-term growth of the asset. The banks have become stricter on interest-only loans over the last 18 months.
When applying for a loan, I personally calculate my repayments based on an interest rate of 7% so there are no surprises and that rate has worked out to be the average in my time in my real estate career. It's easy to do, just use one of the bank's repayment calculators.
Finally, something I personally do and I would recommend to everyone is an end-of-financial year health check on your finances. I find out what interest rates are on offer in the market and then I go back and renegotiate with my bank. There can be big savings sitting on the table to take advantage of. Never be afraid to talk with your bank about it as this is simply part of their service.