Buying a home is the largest investment that most people will make in their lifetime. It involves a lot of money which is why it’s imperative that you understand every detail of your home loan. Buying your first home can be quite a challenge. To help ease your journey to home ownership, we have compiled and answered the most frequently asked questions asked by first home buyers. Here they are.
What is a pre-approval?
A pre-approval can help you calculate your borrowing capacity when you decide to take out a home loan. To apply for a pre-approval, you need to supply basic facts about your finances such as your annual salary, other sources of income, current monthly living expenses, and other financial responsibilities like your credit card limit.
Your lender will also need information about your borrowing details such as how much you're willing to spend on a property, how much you think you'll need to borrow, the loan purpose (eg. if you’re buying a house or building a house, etc). It is important to know though that a pre-approval is not a guaranteed loan approval! It is a strong indicator of whether you would get the loan. A guaranteed loan approval requires further detail to be submitted, such as full credit check, etc.
The amount of deposit required will largely depend on the value of the house you’re buying. Generally, if you’re buying your own house you will need to deposit at least 20% of the value of the property to avoid paying for Lender’s Mortgage Insurance or LMI. LMI is a type of insurance designed to protect the lender just in case you default on the loan. LMI is usually capitalised into the total loan amount (i.e. it is simply added to your total loan amount). The more you have for a deposit, the less you generally pay for LMI.
Buying a house is a huge investment. You want to make sure that everything is in good shape before making the purchase. One way to make sure the house has no problems is to obtain a building and pest inspection report. This will include any information about any structural, electrical and plumbing issues with the property, and if there are any pest problems such as termites.
First home buyers may qualify for a First Home Owner Grant (FHOG). A FHOG is a (most often state) government initiative designed to help people buy or build their first home. The amount of the grant will depend on your location, value of the property, and date of your contract. To find out if you’re eligible for for a FHOG, visit your state government’s website.
Stamp duty is a state government tax that everyone must pay. The amount of stamp duty will depend on the property’s value and location. First home buyers can sometimes benefit from stamp duty concessions, but this will depend on where they are buying (eg. state). To get an estimate of how much stamp duty you need to pay, you can use our stamp duty calculator.
Home loan products have a variety of features. These can vary from lender to lender but the popular features worth knowing about are: