First home buyer's guide for singles

First home buyer's guide for singles

Buying a home can be laborious, stressful and confusing. This is never truer than when you have to do it alone, without the extra emotional and financial support provided by a partner.

Then again, there are also great benefits to owning a home alone – it’s yours and yours alone, you can make independent decisions on whether to make extra repayments depending on changes to your income, you can decorate it exactly as you like and you don’t have to share the capital gains with anyone.

But first you have to buy it. The first hurdle is saving a deposit – most lenders require at least 5 percent down payment, but you’ll need at least 20 percent of the purchase price if you want to avoid the extra cost of lender’s mortgage insurance. And you’ll have to save the entire sum yourself. On one income, it may take twice as long.

Next, the amount you are able to borrow depends on your income. The higher your income, the more money you will be able to borrow – and your repayments will therefore be higher. In determining your borrowing limit, lenders use a debt-service ratio – the ratio of loan repayments to your gross income. As a guide for a single person on one income, most experts suggest spending no more than 35 percent on servicing a home loan to avoid mortgage stress.

Your borrowing capacity will also depend on the interest rate. When rates are higher, your borrowing capacity is lower. Right now, interest rates are relatively low so you will be able to borrow more.

While interest rates are on a downward course at the moment, you must be prepared for their eventual increase. Will you be able to afford your repayments at a higher interest rate? Borrowers are urged to factor in a 2 percent buffer, should rates rise in the future.

Whether you are buying alone or in partnership with someone, lenders will be interested in your job stability and financial situation. Are you employed full-time and how long have you been with your employer?

Once your home loan application is approved and you find a home you love within your borrowing limit, there are other considerations for which you must plan. Homes, whether apartments or free-standing houses, require ongoing maintenance.

Leaky roofs, cracks in the wall, a collapsed fence – such expenses can often be unexpected, but you should ensure you are able to cover them should they occur. Building maintenance for apartments and townhouses may be covered by strata levies, and you should factor in these quarterly repayments in your budget.

If you can afford it, now may be a good time to buy.

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Mortgage Calculator, Loan Purpose

This is what you will use the loan for – i.e. investment. 

What is the amortisation period?

Popularly known as the loan term, the amortisation period is the time over which the borrower must pay back both the loan’s principal and interest. It is usually determined during the application approval process.

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

What factors does Real Time Ratings consider?

Real Time RatingsTM uses a range of information to provide personalised results:

  • Your loan amount
  • Your borrowing status (whether you are an owner-occupier or an investor)
  • Your loan-to-value ratio (LVR)
  • Your personal preferences (such as whether you want an offset account or to be able to make extra repayments)
  • Product information (such as a loan’s interest rate, fees and LVR requirements)
  • Market changes (such as when new loans come on to the market)

Does Real Time Ratings' work for people who already have a home loan?

Yes. If you already have a mortgage you can use Real Time RatingsTM to compare your loan against the rest of the market. And if your rate changes, you can come back and check whether your loan is still competitive. If it isn’t, you’ll get the ammunition you need to negotiate a rate cut with your lender, or the resources to help you switch to a better lender.

What happens to your mortgage when you die?

There is no hard and fast answer to what will happen to your mortgage when you die as it is largely dependent on what you have set out in your mortgage agreement, your will (if you have one), other assets you may have and if you have insurance. If you have co-signed the mortgage with another person that person will become responsible for the remaining debt when you die.

If the mortgage is in your name only the house will be sold by the bank to cover the remaining debt and your nominated air will receive the remaining sum if there is a difference. If there is a turn in the market and the sale of your house won’t cover the remaining debt the case may go to court and the difference may have to be covered by the sale of other assets.  

If you have a life insurance policy your family may be able to use some of the lump sum payment from this to pay down the remaining mortgage debt. Alternatively, your lender may provide some form of mortgage protection that could assist your family in making repayments following your passing.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Does each product always have the same rating?

No, the rating you see depends on a number of factors and can change as you tell us more about your loan profile and preferences. The reasons you may see a different rating:

  • Lenders have made changes. Our ratings show the relative competitiveness of all the products listed at a given time. As the listing change, so do the ratings.
  • You have updated you profile. If you increase your loan amount, the impact of different rates and fees will change which loans are the lowest cost for you.
  • You adjust your preferences. The more you search for flexible loan features, the more importance we assign to the Flexibility Score. You can also adjust your Flexibility Weighting yourself, which will recalculate the ratings with preference given to more flexible loans.

Mortgage Calculator, Interest Rate

The percentage of the loan amount you will be charged by your lender to borrow. 

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

What is the ratings scale?

The ratings are between 0 and 5, shown to one decimal point, with 5.0 as the best. The ratings should be used as an easy guide rather than the only thing you consider. For example, a product with a rating of 4.7 may or may not be better suited to your needs than one with a rating of 4.5, but both are probably much better than one with a rating of 1.2.

How is the flexibility score calculated?

Points are awarded for different features. More important features get more points. The points are then added up and indexed into a score from 0 to 5.

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

Mortgage Calculator, Deposit

The proportion you have already saved to go towards your home.