Rudd's First Home Owners Boost, How much is it really saving you?

Rudd's First Home Owners Boost How much is it really saving you?

Rushing to buy your first home? Lynne Blundell investigates how you could save over $41,000 despite missing out on the Boost.

October 2, 2009

If you are buying your first home you’re no doubt keen to get the Federal Government’s First Home Owners Grant (FHOG) as well as the First Home Owners Boost (FHOB). With the cut-off date for the Boost fast approaching (December 31, 2009) you may be stressing about missing out.

But before you race out and sign up to the first home loan you find just so that you make the deadline, take some time to shop around – it could save you a great deal of money and heartache.

The national FHOG of $7,000 was introduced in 2000 and is funded by the various states and territories. In 2008 the Labor Government added to this grant, introducing the FHOB as part of its stimulus package.

As a result, first home buyers flocked back to the housing market for the first time in many years.

In the first round of boosts, eligible first home owners buying an existing home could receive an extra $7,000 – a total of $14,000 when added to the existing FHOG. Those buying or building a new house could get up to an extra $14,000 – totaling $21,000 when

From October 1, 2009, the boost funding has reduced to $3,500 for those buying an existing house ($10,500 inclusive of the FHOG) and to $7,000 for those buying or building a new home ($14,000 inclusive of the FHOG). The boost will stop on December 31, 2009.

The extra funding from the government has been a great help to many first home buyers. But it is important not to become overly focused on this extra sum of money to the exclusion of other factors when buying.

Finding the right loan is almost as important as finding the right home – it will impact on you for many years to come.

Consider the two couples in the following scenarios. Both couples need a home loan of $300,000 and are eligible for a FHOG of $7,000 as well as the $3,500 Boost.

The cutoff date for the boost is only weeks away and both couples are keen to make the deadline. But their approach is very different.

Scenario 1
Tom and Emma want to buy their home before the FHOB cuts off in December. They have found their dream home so they go to their existing bank and ask about loans.

Because they only have a few weeks before the cut-off date for the boost they don’t spend any time comparing what other loans are available. They are relieved when their bank approves a loan and they sign up to a $300,000 variable interest home loan with an advertised interest rate of 5.81 percent p.a.

However the real rate – or comparison rate, which includes costs for ongoing fees – is actually 5.85 per cent. Their payments are $1,905 per month and $571,647 over 25 years.

Scenario 2
Elena and Joe have also found their dream home and they know the first home owners boost is about to cut off in a couple of weeks. They are keen to get the extra $3,500 and realise they might miss out if they spend too much time comparing home loans.

However, they aren’t happy with what their existing bank is offering so they spend some time comparing home loans and talking to lenders.

They find a home loan offering 5 percent p.a. variable interest with no upfront or ongoing fees. They do miss the FHOB deadline, but because of the competitive rate of their loan they have saved thousands of dollars.

Their monthly payments are $1,754, a saving of $151 per month and over $45,000 less over 25 years compared to Tom and Emma. Even without the extra $3,500 from the Boost they are still $41,500 in front.

While there is no doubt the government grants to first home owners have been a boon to many, the extra money should be kept in perspective. Paying off a home loan is a long term commitment. By taking the time to not only find the right home but to compare home loans and lenders, you will have avoided a great deal of future stress and saved yourself much more than $3,500.

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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).

Can I take a personal loan after a home loan?

Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:

  • Higher-income to show repayment capability for both the loans
  • Clear credit history with no delays in bill payments or defaults on debts
  • Zero or minimal current outstanding debt
  • Some amount of savings
  • Proven rent history will be positively perceived by the lenders

A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.

As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

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 can I get a home loan with bad credit?

If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.

One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.

Two points to bear in mind are:

  • Many home loan lenders don’t provide bad credit mortgages
  • Each lender has its own policies, and therefore favours different things

If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.

Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:

  • You have a secure job
  • You have a steady income
  • You’ve been reducing your debts
  • You’ve been increasing your savings

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.

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.

Are bad credit home loans dangerous?

Bad credit home loans can be dangerous if the borrower signs up for a loan they’ll struggle to repay. This might occur if the borrower takes out a mortgage at the limit of their financial capacity, especially if they have some combination of a low income, an insecure job and poor savings habits.

Bad credit home loans can also be dangerous if the borrower buys a home in a stagnant or falling market – because if the home has to be sold, they might be left with ‘negative equity’ (where the home is worth less than the mortgage).

That said, bad credit home loans can work out well if the borrower is able to repay the mortgage – for example, if they borrow conservatively, have a decent income, a secure job and good savings habits. Another good sign is if the borrower buys a property in a market that is likely to rise over the long term.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

How much is the first home buyer's grant?

The first home buyer grant amount will vary depending on what state you’re in and the value of the property that you are purchasing. In general, they start around $10,000 but it is advisable to check your eligibility for the grant as well as how much you are entitled to with your state or territory’s revenue office.

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