What options do first home buyers have?

What options do first home buyers have?

Andrea Sophocleous reports on the best options for first home buyers who want to enter the property market and secure a home loan this year.

March 8, 2010

Australians hoping to snap up their first home this year will have to tackle growing property prices, rising interest rates and the continuation of tight lending conditions, all without the help of the Federal Government’s $14,000 First Home Owners’ Boost, which expired on 31 December.

But the news is not as dire as a cursory glance at the market would suggest. The $7,000 First Home Owners Grant is still on offer and while rising, interest rates remain at affordable levels. With the right amount of financial preparation, first home buyers still have a chance to fulfil their home ownership dream.

“There are still incentives out there for first home buyers such as the $7,000 First Home Owners Grant, stamp duty exemptions and first home buyer savings accounts, which are a great option if you plan to buy a home in four years or more,” says RateCity’s CEO, Damian Smith.

Just last month, National Australia Bank reversed its original forecast of a 5 percent decline in property prices for 2010 to predict an increase of 5 percent, fuelled by lower unemployment and growing confidence in the economy. The sooner first home buyers can dive into the market, the higher the likelihood of avoiding the price hike.

Tips for first home buyers

  1. Start a savings plan if you don’t already have one, to help you pull together the deposit but also allow you some leeway once the mortgage repayments kick in. Compare high interest savings accounts on RateCity and take advantage of first home buyer savings accounts offered by several banks. These include high interest rates, a bonus of up to 17 percent p.a. from the government and tax incentives. Keep in mind, however, that you will be locked in for a minimum of four years.
  2. Lower your debts and reduce your credit card limits. This is not just to ease the financial strain on you in preparation for the biggest financial commitment you will ever make – it’s also because lenders determine your borrowing capacity based on your credit limits and debt levels. Compare balance transfer credit cards where some providers offer 0 percent for six months.
  3. Once you are ready, shop around online for home loans and apply for pre-approval. Not having approval can mean the difference between securing your first home and missing a bargain because you are not ready to sign a contract.
  4. Ensure you can afford to meet your mortgage repayments and live comfortably. Factor in any likely rate increases in the short to medium-term, keeping in mind that experts predict a 1 percent rate rise by the end of 2010.

 

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Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

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

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Mortgage Balance

The amount you currently owe your mortgage lender. If you are not sure, enter your best estimate.

What do mortgage brokers do?

Mortgage brokers are finance professionals who help borrowers organise home loans with lenders. As such, they act as middlemen between borrowers and lenders.

While bank staff recommend home loan products only from their own employer, brokers are independent, so they can recommend products from a range of institutions.

Brokers need to be accredited with a particular lender to be able to work with that lender. A typical broker will be accredited with anywhere from 10 to 30 lenders – the big four banks, as well as a range of smaller banks, credit unions and non-bank lenders.

As a general rule, brokers don’t charge consumers for their services; instead, they receive commissions from lenders whenever they place a borrower with that institution.

What is a valuation and valuation fee?

A valuation is an assessment of what your home is worth, calculated by a professional valuer. A valuation report is typically required whenever a property is bought, sold or refinanced. The valuation fee is paid to cover the cost of preparing a valuation report.

What is appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

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.

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

Mortgage Calculator, Deposit

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

Mortgage Calculator, Repayments

The money you pay back to your lender at regular intervals. 

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

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How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.