HomesVic launched to support Victorian first homebuyers

HomesVic launched to support Victorian first homebuyers

The Victorian government recently launched HomesVic – a new housing affordability scheme intended to assist struggling first home buyers to take their first step onto the property ladder.

First announced in early 2017, HomesVic will take a proportional interest of up to 25% in the properties of first home buyers who meet the eligibility criteria, thus reducing the need for these borrowers to save large home loan deposits, or to seek support from a family guarantor.

At launch, the HomesVic scheme will support up to 400 home purchases, backed by initial funding of $50 million. Eligible borrowers will need to have a 5% deposit available for buying their first home, as well as a maximum income of up to $75,000 for singles, or up to $95,000 for couples or families.

When the properties are sold, the Victorian government will recover its stake from the sale price, to be reinvested in other homes. The government’s share can also be repaid by the borrower over the course of their mortgage term.

Example:

Laura works as a part-time teacher earning $50,000 a year. She applies to HomesVic and, with the scheme’s assistance, is able to buy a property valued at $350,000.

Laura takes out a loan of $245,000 on the property, supported by a 25% shared equity contribution of $87,500 and a 5% deposit of $17,500, effectively giving her a Loan to Value Ratio (LVR) of 70%.

Two years after the purchase, Laura secures a full-time role as a teacher earning $80,000 a year, which is within the income thresholds which are indexed each year. With increased income, Laura begins to pay the Government’s proportional interest. By this stage, Laura’s equity has increased from 5% ($17,500) to 12% ($42,000).

Laura approaches her home loan provider and is permitted to increase the home loan by $60,000 based on her increased income and a revaluation of the property at $375,000. This reduces the Government’s proportional interest from 25% to 9%.

Source: HomesVic

HomesVic will allow eligible borrowers to purchase property in selected areas of Victoria where there is high demand for housing, as well as good access to employment, public transport and other services. There are 33 priority areas spanning 85 Melbourne suburbs, 130 town and suburbs in and around key regional centres and seven peri-urban towns.

Borrowers eligible for HomesVic will also be able to receive the First Home Owner Grant when purchasing new dwellings in metro Melbourne ($10,000) or regional Victoria ($20,000), though not when purchasing established dwellings. Also, in Victoria, first home buyers who purchase a home valued at under $600,000 will not be required to pay stamp duty, and first home buyers who purchase a home valued between $600,000 and $750,000 will pay reduced stamp duty.

The launch of the HomesVic has been welcomed by the Housing Industry Association (HIA), with HIA chief executive of industry policy, Kristen Brookfield, comparing it to similar schemes in other states and territories, such as Land Rent in the ACT and Keystart in Western Australia.

“HIA figures show that the typical stamp duty bill on homes in Victoria has risen by 4000 percent since 1982. With the median price of a Melbourne dwelling at $720,417, this makes buying a house a pipe dream for so many low income young people.” – Kristen Brookfield, HIA

The HomesVic application process will commence in early to mid-February 2018.

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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.

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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.

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.

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.

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

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.

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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).

What is equity? How can I use equity in my home loan?

Equity refers to the difference between what your property is worth and how much you owe on it. Essentially, it is the amount you have repaid on your home loan to date, although if your property has gone up in value it can sometimes be a lot more.

You can use the equity in your home loan to finance renovations on your existing property or as a deposit on an investment property. It can also be accessed for other investment opportunities or smaller purchases, such as a car or holiday, using a redraw facility.

Once you are over 65 you can even use the equity in your home loan as a source of income by taking out a reverse mortgage. This will let you access the equity in your loan in the form of regular payments which will be paid back to the bank following your death by selling your property. But like all financial products, it’s best to seek professional advice before you sign on the dotted line.

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.

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.

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 do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

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