Know Your Entitlements
First home owner incentives change and also vary from state to state. Please contact us for updated information as part of your research and purchasing preparation. First Home Owner Grant (FHOG) The First Home Owner Grant (FHOG) scheme was introduced on 1 July 2000 to o set the e ect of the GST on home ownership. It is a national scheme funded by the states and territories and administered under their own legislation. The scheme has undergone many changes since its first introduction. Each state has its own eligibility criteria which apply to the grant amount, the properties and applicants. Some states also have a first home bonus scheme to encourage the building of new properties.
First Home Owner Grant Cap Each state applies a cap to the First Home Owner Grant by setting a purchase price above which the grant is no longer available.
First home saver account If you:
- are aged between 18 and 65,
- have not previously purchased or built a first home in which to live,
- do not have or have not previously had a first home saver account, and
- provide your tax file number to the provider, you can open a first home saver account.
This account provides a simple tax effective way for Australians to save for their first home through a combination of government contributions and lower taxes. The government will contribute 17% on the first $5,000 (indexed) of individual contributions made each year. This means an individual contributing $5,000 will receive a government contribution of $850. For further details, log on to: http://tinyurl.com/bourhpg
Stamp duty concessions
When you buy a home in Australia, the government imposes a stamp duty tax. This tax is added to the purchase price of your home and is assessed on the sale price of the property. First home buyers may be eligible for rebates in the form of stamp duty rebates or exemptions. We will assist you to calculate your stamp duty if applicable.
A Helping Hand From Parents
Parents want to assist their children to achieve the great Australian dream of home ownership. It is reported that 8 in 10 parents are prepared to lend a hand by providing some form of financial support in an effort to help their children enter the property market.
This financial support may be in the form of:
- gifting at least part of the deposit to their children,
- providing a supplementary loan in addition to the bank loan, typically interest free, or
- acting as guarantor.
Parents providing assistance with the deposit must be aware that a gift is not repayable. The majority of lending institutions will require parents to declare that the funds they have provided are a non refundable gift. Supplemental loan Parents who have available finances today, but with future needs, may want to consider providing a supplemental loan to their children, potentially with low or no interest. It is strongly recommended that this type of loan and its terms be documented between the parties. Remember, parents may have a good relationship with their children and their children’s partners now, but who knows what might happen in the future? As an alternative to providing a loan, parents can choose to buy the home with their children, allowing them to enter the housing market and providing the parent with an investment property. In this scenario, it is a more common practice for the parties to be “tenants in common” rather than “joint tenants” and also allowing a different ownership ratio to the normal 50/50. However, with part ownership the child will not qualify for the First Home Owner Grant. Acting as guarantor Some lending institutions have what is called a Family Pledge. This allows family members with equity in their own property to help their children/grandchildren/siblings with additional security, thereby allowing them to borrow up to the full cost of the home. Some lending institutions allow the guarantor to nominate the specific amount to which the guarantee is limited rather than a traditional open guarantee for the entire amount. The guarantors are usually recommended or required to gain legal and financial advice in order for the lender to proceed with the guarantor’s loan.
The lender we choose together is going to do a credit reference check on you. They’ll be looking at any credit applications made by you and will be checking if you’ve defaulted on payments or have an infringement referenced either in your name or your company’s name if you are self employed. Make sure that you have a “clean slate” by checking your credit report. If something appears that you are unaware of, advise the agency immediately. You can order your personal credit file online. Enter your personal information, pay by credit card and your credit file will be forwarded to you as a PDF file. Alternatively call 1300 762 207 and order your credit file over the phone. Please bring a print out of the credit file to your appointment with us.
How much can I borrow?
The amount you can borrow depends on the type of property you are buying and how much money you have left when you account for all your fixed commitments from your net income. As a general rule of thumb, you should be paying less than one third of your income on your mortgage repayments. Firstly, look at your weekly budget by using our budget planner. We are experienced in helping you determine how much you can borrow and what type of loan will suit your budget and lifestyle.
What deposit will I need?
Most lenders require a 5% deposit and a history of savings. It is once again common to include some of your capitalised assets in your loan with some lending institutions allowing up to a 97% LVR. If you are borrowing more than 80% of the purchase price you will be required to pay lender’s mortgage insurance (LMI – an additional fee). The more you can put down as a deposit, the less you will have to borrow, the lower your repayments and the less you will have to pay over the lifetime of your loan.
We will look at your personal circumstances and work with you to determine your deposit requirements. Deposit bonds A deposit bond is a guarantee to the vendor. You, the purchaser, are able to provide this guarantee to the vendor by paying a small premium to the insurance company for the bond. All purchase funds are paid at settlement. In the ordinary course of events, settlement takes place, the purchase price is paid in full and the deposit bond simply lapses.
Should I buy with someone else?
The most common way to buy a property with two or more people who aren’t married or in a de-facto relationship is through a tenants- in-common arrangement. This allows the property ownership to be split any way – not necessarily into equal shares. Three people can buy a third each or it can be divided in other proportions. It also means your share of the property can be left to the person of your choice when you die. In contrast, a property owned under a joint tenant arrangement (usually by couples) is held in equal shares. If one owner dies, their interest automatically passes to the other owner. Shared property ownership only works if strict ground rules and a tight contract are in place. Everything needs to be in writing. Your legal representative should be consulted. The two most important points you need to cover are what happens if one owner wants to sell their share and what happens if one owner cannot meet their repayments.
Loan application fee
There is a standard upfront loan establishment fee charged by your lender. The fee covers the preparation of loan application documentation, legal fees for standard mortgage preparation and one standard valuation.
Appointing your legal representative
You will need to appoint a conveyancer/ solicitor to ensure that the contract is in your best interest and does not contain any unsatisfactory terms. Make sure you know your legal representative’s qualifications and exactly what service they are offering.
Their role is to:
- give advice on the property contract,
- facilitate council, strata and company title searches,
- negotiate with the vendor’s solicitor on your behalf,
- arrange for the exchange of contracts,
- deal with any difficulties that arise during the settlement period,
- arrange for the settlement process, and
- order pest and building inspections.
It is a good idea to “shop around” for someone experienced, or call the office for our recommendations. Your legal representative should also advise you of any future developments which could affect your home by checking with the local council.
Stamp duty is a state government tax on the transfer of property and is assessed on the sale price.
- ACT: www.revenue.act.gov.au
- NSW: www.osr.nsw.gov.au
- NT: www.revenue.nt.gov.au
- QLD: www.osr.qld.gov.au
- SA: www.revenuesa.sa.gov.au
- TAS: www.treasury.tas.gov.au
- VIC: www.sro.vic.gov.au
- WA: www.dtf.wa.gov.au
The amount of duty varies from state to state: Your conveyancer/legal representative will advise you of the amount payable and if you are entitled to an exemption, or you can check your state’s website. Inspections
Building and pest inspections are a must! Your conveyancer will enlist/suggest the services of an authorised pest and building inspector. Your purchase contract can be subject to a satisfactory inspection or your inspection can be scheduled during your cooling off period. The inspector will provide a written report pointing out any faults in the property, whether they can be repaired and how much these repairs are likely to cost. The report will also highlight any unsafe or unauthorised renovations and extensions that can be ascertained. You may be able to use this report to negotiate conditions in the contract as well as the price. Pest inspections are not usually covered in a building report. Ask for proof of ongoing termite inspections. If no proof exists, your inspector will provide a report that complies with the Australian standard. If buying at auction you will need to arrange this prior to the day of the auction. Shop around to compare prices and ensure that the company you choose is fully licensed and insured. These reports could save thousands if you were to buy a property needing unforeseen repairs. In the case of a strata title property, your contract for sale will provide the name of the strata manager. You can arrange for an inspection of the books and records of the owners’ corporation.
Compare prices! Obtain three estimates from reputable or recommended carriers. Ask what the estimates include (eg insurance) and consider whether it may be worthwhile for them to do the packing for you. Add in the costs of transporting pets and delicate or special items. There may also be fees to disconnect and connect utilities.
Mortgage protection and lender’s mortgage insurance
Mortgage protection and lender’s mortgage insurance (LMI) provide protection for two different situations. Lender’s mortgage insurance is usually required where your deposit is less than 20% of the purchase price of your property and protects the lender in the event that you default on your repayments. Mortgage protection is insurance that supports you in case you become involuntarily unemployed or are unable to work due to illness or disability. Your mortgage is likely to be the biggest financial decision you will make in your life. It makes sense to ensure that you can continue to meet your commitment in the case of unforeseen events.
Life insurance provides a lump sum payment to your beneficiaries in the event of your death. If you are the main income earner in the family, this insurance will help your family manage their future (eg paying out mortgages, schooling and other family expenses) without your ongoing earning capacity.
Total and permanent disability (TPD)
You can choose to cover yourself for either total and permanent disability or death options, providing you can no longer work or in the event that you die due to illness or accident. When combined with life insurance, this can provide security for you and your family for the rest of your life. Income protection This insurance is designed to pay you a predetermined percentage of your monthly income (usually 75%) should you be unable to work due to illness or injury. Home and contents Your home and contents insurance should provide you with adequate cover should you need to repair or replace your home (ie, house, garage, shed) and your contents in the event they are destroyed, damaged or stolen.
Choosing the Right Loan
Whether you’re buying your first home, upgrading, refinancing, investing in property or wanting to pay o your existing home loan sooner, there are many options available when choosing a home loan. Because your home loan will probably be your biggest expense it is important that you obtain the best advice and make a decision based on the option that best suits your personal circumstances.
Interest only loans vs principal and interest loans
The choice between interest only loans and principal and interest loans should reflect your personal circumstances. Repayments on interest only loans will always be lower than principal and interest loans but there is the disadvantage of not reducing the principal loan amount. The flexibility of being able to make extra repayments in good times is an attractive option for interest only loans. Most home loans have the facility of being able to make additional repayments without a penalty.
A loan with lower repayments for the first six to twelve months. After the ‘honeymoon’ the loan becomes a standard variable loan and the repayments increase. Make sure that you can meet the higher repayments for the remainder of the loan. You could also be faced with a fee at the end of the honeymoon period to switch to another loan type.
Basic or ‘no frills’ loans
A variable rate loan with a relatively low interest rate. The low rates for these loans could mean that you can repay the loan faster because there are no extra options available.
Repayments will rise and fall with interest fluctuations. Remember to check that the loan conditions will suit your circumstances – particularly the ability to make additional repayments and payout without a penalty.
Standard variable rate loans
These loans are the most common type available. The variable rate loan offers more features and flexibility than the basic or ‘no frills’ loan, so the rate is usually slightly higher.
The extra options can include:
- a redraw facility,
- the option to split between fixed and variable,
- extra repayments, and
These options should be taken into account when choosing your type of variable loan. Repayments will vary as interest rates fluctuate.
Fixed rate loans
These loans are set at a fixed interest rate for a specified period – usually one to five years. The advantage of allowing you to organise your finances and repayments without the risk of rising interest rates is o set by the disadvantage of not bene ting from a drop in rates. At the end of the term all fixed loans automatically revert to the applicable variable rate. At this stage you have the option to lock in another fixed rate for a new term, switch to variable or go for a loan where you split with a percentage fixed and the remainder variable. However these loans may have limited features and lack the flexibility of 100% variable loans. There may be early exit fees and limited ability to make extra payments.
Professional home loan packages
These loans are offered to provide an all-in- one home loan package.
- interest rate and fee savings on your home loan.
- credit card and transaction accounts. Some lenders also waive the annual fees for your credit cards.
- an annual fee ranging from $120 to $395 (usually applicable on these loans).
If you’re building a new home or planning major renovations to your existing home, a construction loan is generally the most appropriate funding option. The difference between a construction loan and other types of loans is that a construction loan is drawn down in stages and not paid as a lump sum. The draw downs enable the builder of a home to nance the various stages of the construction process from the acquisition of land to the various stages of building.
An offset account is a savings account attached to your loan account. Money in this account is offset against the loan amount thereby reducing interest payable. Significant savings are made by reducing compound interest. Other advantages of an offset account include being able to pay o your home loan faster than the repayment schedule demands while being able to redraw money if the need arises.
Applying For a Loan
All lenders are likely to ask for the same information. If you’re approaching a lender for the first time you’ll need to be ‘identified’. When you apply for a home loan you have to show identification up to the value of 100 points. A driver’s licence earns 40 points, a credit card can earn 25 points and a birth certificate 70 points. Only original documents qualify.
It’s common for a home loan application form to take up to 10 pages.
Your lender will want to ascertain your:
- capacity to repay,
- financial risk,
- collateral (will the property you are buying be adequate security for the amount borrowed?), and
- existing assets.
You will also be asked:
- if you have dependent children,
- how long you have lived at your current address,
- what you owe and own,
- your personal insurances, and
- your credit card details.
It is advisable to have:
- your two most recent pay slips,
- group certificates for the past two years, and
- documentation from your employer detailing income and length of employment.
Self employed applicants should provide their past two years’ tax returns or past two years’ financial statements and accountant’s details. Some institutions may even ask for a profit and loss statement certified by a registered accountant.
Also needed are:
- savings details,
- bank statements including transaction, saving or passbook accounts,
- investment papers including managed funds or term deposits,
- what you owe and own,
- details of personal loans, credit cards or charge cards, and
- tax liability if self-employed.
Details of life insurance policies and superannuation as well as approximate value of other assets such as furniture and jewellery should also be included.
It is best to have your loan pre-approved before you make any offers. Knowing that your nance is pre-approved will mean you are able to concentrate on a price range and give your full attention to the purchase. Remember that a vendor may also accept a lower than advertised price knowing that your finance is organised. They may want a quick and hassle free sale.
Once your loan is formally approved, we arrange mortgage documents for you to sign. We will go through the mortgage contract with you to ensure you understand the contents.