Bank of mum and dad' popular choice for first home buyers

Bank of mum and dad' popular choice for first home buyers

It’s always been a bank you can trust, but just how popular is the bank of mum and dad?

New RateCity research shows that half of Gen Y couples now need financial help from their parents to get into the property market.

Parents love to tell their kids they’ve ‘never had it so good’, but when it comes to property, the saying falls flat, with the research showing around half of Gen X couples needed just two salaries to afford their first home, while half of baby boomers needed just one.

Property prices have sky-rocketed in the last five years, particularly in our capital cities, so it’s no wonder a lot of younger people are struggling to outbid cashed-up investors at the point of sale.

In NSW, potential first home owners are also about to take another hit.  The state’s first home owners’ grant, which is for new homes only, is scheduled to be scaled back from $15,000 to $10,000 on 1 Jan 2016.

Watch the Channel Nine News report

So what are the biggest financial pressures holding under 35’s back? 

The RateCity study found the biggest barrier to homeownership was salary, with 68 per cent of respondents indicating they didn’t earn enough to meet the financial commitments a mortgage brings.  This was closely followed by cost of living (59 per cent), rising property prices (55 per cent) and rent (22 per cent).

Interestingly, those on a higher income were the ones that felt the rental pinch the most, while the majority of 18 – 24 year olds didn’t rate it as a concern at all, most likely because they are still living at home.

Are parental financial gifts driving inequality?

Recent modelling by economists from Sydney University and RMIT University found that kids who receive a gift of $5,000 or more from a parent are much more likely to own a home than others.

Fantastic news for people whose parents can afford to give them a leg up, but of course, the issue is that this predominantly applies to wealthier families. 

Does this mean that lower income families are entrenched in a cycle of renting? Hopefully not.  As the researchers explain, their study is hoped to help inform governments when assessing the effectiveness of housing policies and grants.

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First-time landlords

Perhaps unsurprisingly, a number of young Australians are now opting to be first-time landlords, purchasing property that they can afford but might not necessarily want to live in. A recent Mortgage Choice survey showed that 37 per cent of investors were first home buyers, up from 21 per cent on the previous year.

But the introduction of higher interest rates for investors, which began just six months ago and has now been widely adopted by lenders across the market, is a thorn in the side of these young venture capitalists. 

With rates for investors now as much as 1.4 percentage points higher, the extra $100’s in repayments could be enough to deter young investors who only have access to limited funds.

Deposits

Saving for a deposit is hard to do, particularly if your bank tells you you’ll need a sizeable sum before they’ll even consider loaning you the remainder.  But this shouldn’t necessarily be seen as a stumbling block.  Deposits of 20 per cent can really work in your favour when negotiating the best possible rate from your bank. 

A deposit of 20 per cent or more will also mean you can avoid the added burden of lenders mortgage insurance which can be as high as $14,000.

Tips to buying a home

Cracking the property market for the first time is no mean feat.  It requires a lifetime of savings, plus the capacity to meet the monthly mortgage repayments, even when rates rise.

If you can’t quite meet these financial benchmarks, there are some shortcuts you could consider to get your foot on the property ladder faster.

  1. Consider an investment property.  Investment properties do attract higher interest rates but it does mean you aren’t restricted by location.  There’s nothing stopping you looking out of town or interstate, as long as you do your research and try to buy in an area where rental demand is high and house prices are likely to go up, not down.
  2. Get the best rate. Comparing the home loan market and negotiating your home loan rate will save you thousands in mortgage repayments over the life of your loan.  Plus, whenever you can afford to make additional repayments, do.  A mortgage calculator will show you just how many years you can knock off your loan with deposits of a few hundred dollars here and there.
  3. Consider buying with a friend.  Buying with a friend can be perilous, so you’ll need to weigh up the pros and cons carefully and war-game potential problems such as what happens if one of us wants to sell. But with careful planning it is possible to make it work.
  4. Move back with your parents.  It’s a scary thought but if you sit down and work out how much you’ll save in just one year, not just on rent but on other household bills such as electricity and, if you’re lucky, food, then it might just be worth it.
  5. Ask your parents to guarantor your loan. Going guarantor can be a great way to convince a bank to lend you money, but it isn’t as easy as getting mum and dad to sign the bottom line. If you default on your loan, your parents will be expected to step in meet the repayments.

If you still can’t afford it, wait another year or two. Despite the hype, the housing market will still be there in a couple of years’ time.  It is better to have all the safeguards and buffers you need in place, before you take the property plunge.

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Learn more about home loans

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

Can I apply for an ANZ non-resident home loan? 

You may be eligible to apply for an ANZ non-resident home loan only if you meet the following two conditions:

  1. You hold a Temporary Skill Shortage (TSS) visa or its predecessor, the Temporary Skilled Work (subclass 457) visa.
  2. Your job is included in the Australian government’s Medium and Long Term Strategic Skills List. 

However, non-resident home loan applications may need Foreign Investment Review Board (FIRB) approval in addition to meeting ANZ’s Mortgage Credit Requirements. Also, they may not be eligible for loans that require paying for Lender’s Mortgage Insurance (LMI). As a result, you may not be able to borrow more than 80 per cent of your home’s value. However, you can apply as a co-borrower with your spouse if they are a citizen of either Australia or New Zealand, or are a permanent resident.

Can I get a NAB home loan on casual employment?

While many lenders consider casual employees as high-risk borrowers because of their fluctuating incomes, there are a few specialist lenders, such as NAB, which may provide home loans to individuals employed on a casual basis. A NAB home loan for casual employment is essentially a low doc home loan specifically designed to help casually employed individuals who may be unable to provide standard financial documents. However, since such loans are deemed high risk compared to regular home loans, you could be charged higher rates and receive lower maximum LVRs (Loan to Value Ratio, which is the loan amount you can borrow against the value of the property).

While applying for a home loan as a casual employee, you will likely be asked to demonstrate that you've been working steadily and might need to provide group certificates for the last two years. It is at the lender’s discretion to pick either of the two group certificates and consider that to be your income. If you’ve not had the same job for several years, providing proof of income could be a bit of a challenge for you. In this scenario, some lenders may rely on your year to date (YTD) income, and instead calculate your yearly income from that.

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

Why should I get an ING home loan pre-approval?

When you apply for an ING home loan pre-approval, you might be required to provide proof of employment and income, savings, as well as details on any on-going debts. The lender could also make a credit enquiry against your name. If you’re pre-approved, you will know how much money ING is willing to lend you. 

Please note, however, that a pre-approval is nothing more than an idea of your ability to borrow funds and is not the final approval. You should receive the home loan approval  only after finalising the property and submitting a formal loan application to the lender, ING. Additionally, a pre-approval does not stay valid indefinitely, since your financial circumstances and the home loan market could change overnight.

 

 

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

How much deposit do I need for a home loan from NAB?

The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.

Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.  

Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

How do I apply for a home loan pre-approval from Commonwealth Bank?

To apply for a Commbank home loan pre-approval, you can either call the bank at 13 2224 or meet one of the bank’s lending specialists. You can set up a meeting online if you wish. You’ll need to do some homework before contacting the bank, such as gathering information on the kind of properties you’d like to buy and their prices.

Preparing a financial summary, which lists all your income sources as well as significant expenses, can also help determine how much you can afford to borrow. You may also want to check your credit score before applying for pre-approval.

It’s worth remembering that a CBA home loan pre-approval doesn’t guarantee that you’ll get the loan. Once you get the pre-approval, you’ll have about three to six months to decide on a property and apply for the home loan. The bank will then confirm that the property is suitable for the loan before fully approving it.

How much money can I borrow for a home loan?

Tip: You can use RateCity how much can I borrow calculator to get a quick answer.

How much money you can borrow for a home loan will depend on a number of factors including your employment status, your income (and your partner’s income if you are taking out a joint loan), the size of your deposit, your living expenses and any other debt you might hold, including credit cards. 

A good place to start is to work out how much you can afford to make in monthly repayments, factoring in a buffer of at least 2 – 3 per cent to allow for interest rate rises along the way. You’ll also need to factor in additional costs that come with purchasing a property such as stamp duty, legal fees, building inspections, strata or council fees.

If you are planning on renting the property, you can factor in the expected rental income to help offset the mortgage, but again it’s prudent to add a significant buffer to allow for rental management fees, maintenance costs and short periods of no rental income when tenants move out. It’s also wise to factor in changes in personal circumstances – the typical home loan lasts for around 30 years and a lot can happen between now and then.

How much debt is too much?

A home loan is considered to be too large when the monthly repayments exceed 30 per cent of your pre-tax income. Anything over this threshold is officially known as ‘mortgage stress’ – and for good reason – it can seriously affect your lifestyle and your actual stress levels.

The best way to avoid mortgage stress is by factoring in a sizeable buffer of at least 2 – 3 per cent. If this then tips you over into the mortgage stress category, then it’s likely you’re taking on too much debt.

If you’re wondering if this kind of buffer is really necessary, consider this: historically, the average interest rate is around 7 per cent, so the chances of your 30 year loan spending half of its time above this rate is entirely plausible – and that’s before you’ve even factored in any of life’s emergencies such as the loss of one income or the arrival of a new family member.

How long does Bankwest take to approve home loans?

Full approval for a home loan usually involves a property valuation, which, Bankwest suggests, can take “a week or two”. As a result, getting your home loan approved may take longer. However, you may get full approval within this time if you applied for and received conditional approval, sometimes called a pre-approval, from Bankwest before finalising the home you want to buy.  

Another way of speeding up approvals can be by completing, signing, and submitting your home loan application digitally. Essentially, you give the bank or your mortgage broker a copy of your home’s sale contract and then complete the rest of the steps online. Bankwest has claimed this cuts the approval time to less than four days, although this may only happen if your income and credit history can be verified easily, or if your home’s valuation doesn’t take time.

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.