Firstly, What Is Available to First Home Buyers?
As first home buyers, you may be eligible for a grant of up to $10,000 toward the purchase of a house, as well as reduced stamp duty costs. A finance broker can assist you to better understand your eligibility and provide you with the information you need to make an informed decision.
This article will help first home buyers with information on what is involved when buying a property for the first time.
1. Get to Know the First Home Owners Grant.
First Home Owners Grant Eligibility.
According to the Western Australian Government, to be an eligible applicant/s for the First Home Owners Grant you have to meet the following minimum criteria:
- At least one of the applicants must be an Australian Citizen or permanent resident at the date of application.
- Each applicant and/or their spouse can’t have previously received a FHOG or First Home Owner Rate (FHOR) of duty under this scheme.
- Each applicant must be a natural person (this means you’re not buying the property as a company or trust).
- Each applicant must be 18 years of age or over at the date of application.
In addition to these minimum criteria, there are a few more eligibility requirements stipulated by the Western Australian Government:
- Each applicant and/or their spouse cannot have owned residential property anywhere in Australia before 1 July 2000.
- Each applicant and/or their spouse cannot have previously owned residential property anywhere in Australia on or after 1 July 2000 and occupied that property as a place of residence before 1 July 2004.
- Each applicant and/or their spouse cannot have previously owned residential property anywhere in Australia on or after 1 July 2000 and occupied that property as a place of residence for a continuous period of at least six months that began on or after 1 July 2004.
- Each applicant must occupy the home as their principal place of residence for a continuous period of at least six months, commencing within 12 months of completion of the eligible transaction.
- Each applicant must have entered into an eligible transaction on or after 1 July 2000. An eligible transaction is defined under Section 14 of the First Home Owner Grant Act 2000, but is generally a contract for the purchase or construction of a home, or commencement of construction of a home as an owner builder.
- For eligible transactions commencing on or after 1 January 2010, the total value of the home must not exceed the cap amount.
- Each applicant must own the home in their own capacity and not as a trustee of a trust (except as a guardian who holds the interest on trust for a person with a legal disability).
Limitations on the Value of the Home.
To be eligible for the FHOG, the home you are looking to purchase or build needs to be under a certain value. This value is dependent on the location of the property you intend to purchase, as detailed below:
- Below the 26th parallel – value of land and building is up to $750,000
- Above the 26th parallel – value of land and building is up to $1,000,000
The value of the land and building is calculated slightly differently, depending on the type of transaction, as outlined below:
- Established, new home or off the plan – the greater of the consideration (money or payment) for the contract to purchase or the unencumbered value.
- Contract to build – the total of the consideration (money or payment) for the contract to build and the unencumbered value of the land.
- Owner builder – the unencumbered value of the home at the date the transaction is complete.
2. Stamp Duty for First Home Buyers: Know What You’ll Pay.
First things first, what is stamp duty? Put simply, stamp duty is a State Government tax on the purchase of a property.
If the total value of the property you are looking to purchase as a first home buyer is up to the value of $430,000, your stamp duty fee will be completely discounted. This also applies if you are buying vacant land as a first home buyer up to the value of $300,000.
If the property you are looking to purchase as a first home buyer exceeds the above amounts you will have to pay stamp duty, as outlined in the table below
Source: ‘Department of Finance website‘
First Home Owner rate - property
|Dutiable Value||Duty Thresholds|
$0 – $430,000
$430,001 – $530,000
$19.19 per $100 or part thereof above $430,000
First Home Owner rate – vacant land
|Dutiable Value||Duty Thresholds|
$0 – $300,000
$300,001 – $400,000
$13.01 per $100 or part thereof above $300,000
3. Use Loan Repayment & Budget Planner Calculators.
Before considering whether to buy a home, it is really important to understand just how much the repayments on a home loan will affect your lifestyle.
Whiteroom Finance has a Budget Planner that is really useful to understand all of the costs you need to consider after buying a home. If you’re renting and the main difference to your budget will likely be mortgage payments instead of rent, but if you’re leaving the family home there may well be a lot more to consider. Think about the cost of electricity, gas, water, council rates, internet, property maintenance and repairs, increased food costs and transport, and general lifestyle expenses that you may not already be spending…. and don’t forget to add your repayments for your car loan, credit card, afterpay and HELP debts
Whatever is left after considering all of these items is what you have available for a home loan repayment
The home loan repayment will depend on the purchase price of the property, plus any associated stamp duty, settlement agent and government registration fees LESS the deposit you have available, PLUS mortgage insurance costs (if applicable)
Whiteroom Finance has a loan repayment calculator and budget planner to help you figure out the property you can afford as a first home buyer
How to Plan Your Budget.
Planning a budget is not only a great way to save towards buying a property, but also gets your head around your spending habits. By tracking your income and expenses over 3 months, you can identify any areas you can cut back on, how much you can save, and roughly how long it will take to reach your goal amount. For first home buyers, a budget should focus on the three factors outlined below.
If you cut out everything but the bare minimum, you will find yourself going over your budget very easily, which can be disheartening and lead to giving up on being a first home buyer altogether. To be realistic, take into account the ‘treat yourself’ moments and even expenses that may slip your mind, like birthday presents.
Even though you have worked to make your budget realistic, it is still going to involve a lot of discipline. Saving money doesn’t mean you can then put it toward an entirely different purchase. Remind yourself that every dollar you save is going toward purchasing a property. Those ‘must have’ shoes or latest phone can wait.
It may seem contradictory to our last point but allowing for flexibility in your budget is key. Give yourself some wriggle room for any unexpected events or costs that may come up. For instance, no one foresees having their car damaged or broken into, but circumstances like this may mean some of your savings are spent toward repair costs instead of your deposit.
4. Be Aware of Any Existing Debt.
As with your credit score, a potential lender is going to look at any of your existing debt. This could include things such as, credit cards, car loans or Higher Education Contribution Scheme (HECS)/ Higher Education Loan Program (HELP) debt. However, do not worry, even if you have debt it doesn’t mean you are never going to have your home loan application approved.
A good way to position yourself before applying for a home loan is to minimise any repayments you may have. This could mean reducing your credit card limit or aiming to pay off a car loan before applying for a home loan.
First home buyers should also note that a lender does not only take into account the total value of your debt, but also the overall limits of your debt. This is why reducing your credit card limit to a smaller amount is crucial in giving yourself higher borrowing capacity.
For those of you wanting to apply for a home loan but are still paying off your HECS/HELP debt, lenders treat this debt as they would any other. It shouldn’t affect whether or not you receive a home loan, but it does help the lender determine how much money you are able to borrow.
Understand Your Credit History.
One of the very first things a potential lender will look at when assessing your first home buyer loan application is your credit history and credit score. Your credit history shows a lender how you have been managing your repayment obligations, whether you have missed payments or not paid a bill (in which case there may be a default listed against you) and also reveals any debt you may not have disclosed in your application. A credit score provides a numerical score that broadly reflects how well you have been managing your repayment obligations This information is incredibly important as it decides:
- Whether a lender is comfortable giving you a loan; and
- In some cases, the amount of loan and cost of interest you will pay on said loan.
If a buyer has a poor credit history, some lenders will not provide funding and those that do may require a higher deposit and charge a higher rate of interest to cover themselves for taking on a high-risk borrower.
To get a free copy of your credit report you can head to Equifax.
If your credit history is not looking good, don’t despair. Paying bills on time for a period of six months can make a noticeable improvement on your credit score and we are happy to chat with you about ways you might be able to improve your position so you can buy.
5. Know What Lender Options and Requirements Are Available.
20% Deposit Home Loans.
To get the right interest rates and fees for your situation most lenders will need you to contribute 20% of the value of the property as a deposit. For most first home buyers this can be quite a hefty sum of money. As an example, if purchasing a property for $430,000 (and therefore not paying stamp duty as a first home buyer), this deposit would equal $86,000. If you have a 20% deposit already saved for the property you are looking at, then your interest rate and options available for repayment will be substantial. This allows for much greater flexibility in paying off your home loan.
If you were required to pay stamp duty and other costs, these will be in addition to the 20% deposit.
Lenders Mortgage Insured Loans.
If you haven’t got the 20% deposit, there are options available. Some lenders are willing to consider loans where you contribute less than 20% deposit if you pay a mortgage insurance premium on top of the loan amount. Generally, the mortgage insurance premium is added to the loan itself so the deposit you have available isn’t eroded by the mortgage insurance premium payable.
Understand What Lenders Mortgage Insurance Is.
Lenders Mortgage Insurance acts as a safety net for the lender. This is because having a smaller deposit decreases the equity (amount already paid off your loan) on your potential property. If you are forced to sell your property unexpectedly, the one-off Lenders Mortgage Insurance payment means the lender won’t lose money on the sale of the property. So why is it important for you as a first home buyer? Lenders Mortgage Insurance allows you to purchase your property without having to wait until you have a 20% deposit saved. Allowing you to enter the property market sooner.
If undertaking a mortgage insured loan is an expense or risk you can’t afford, a Guarantor Home Loan could be a viable option. These home loans involve a close relative (parent, grandparent, or sibling) nominating the equity of their home as additional security to your loan. The equity is the portion of their mortgage they have already paid off.
So how does having a guarantor help? It is effectively letting the lender know, if you are unable to make your loan repayments, your relative (the guarantor) is able to step in and make payments for you, based on their previous ability to pay their own home loan.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.