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As part of our ongoing ‘Ask and Adviser’ series, we chat with Melbourne-based Financial Planner, Anthony Denaro.
Anthony has more than a decade of experience in the financial industry and has been with Invest Blue since 2021. His areas of speciality are wealth creation, wealth protection and retirement planning. Anthony has a passion for improving the financial well-being of his clients and loves helping clients and their families live their best possible lives.
Here, Anthony answers some key questions for first-home buyers.
Q. Anthony, for those keen to purchase their first home or apartment, when is the right time to speak to a mortgage broker or financial adviser?
I recommend seeking expert advice from the outset. There’s no doubt that buying a property is a huge leap from living at home or renting. In fact, purchasing your first home is likely to be one of the biggest decisions of your life and having the right information is extremely important.
If you’re just starting to save for a home deposit, it’s an ideal time to speak with an adviser as they can guide you on how best to maximise your savings. If you’re a bit further along the savings path, a broker can help you determine how much money you can borrow.
Q. What are the benefits of speaking to a professional?
Speaking with a professional takes the guesswork out of buying a home. The expert supporting you will have been through the process countless times with other clients and will be able to guide you on your journey to homeownership.
Q. There’s a lot of information out there about the necessary deposit amount for a first home. What do you consider an ideal deposit?
Having a deposit of 20% will result in a lower mortgage overall and with 20% you also avoid paying Lender’s Mortgage Insurance (LMI – see a review of terms below).
With that said though, a 20% deposit is not always possible. In this case, first home buyers may opt for a Family Security Guarantee. This is when a family member (i.e., parents) guarantee part of your loan. For example, the guarantor may choose equity from their home to be used as security against the loan putting the first home buyer in a position to borrow more money.
With regards to loan guarantors, I strongly recommend people speak with a mortgage broker for further clarification on how this may be applied to their individual circumstances.
There is also the First Home Loan Deposit Scheme. This is an Australian Government initiative that supports eligible first home buyers in purchasing their first home sooner and with as little as a 5% deposit. With this scheme, the government will underwrite the risk of the property up to 20% of the property value to avoid you paying LMI. However, keep in mind that you are still responsible for the total amount borrowed. For example, if you saved 5% and borrowed the remaining 95% you will be responsible for the whole loan.
This scheme is comparative to the Family Security Guarantee but with the government playing the role of guarantor over the loan instead of a family member.
This First Home Loan Deposit Scheme is subject to availability and has various rules so again, it is best to speak with an adviser first.
Q. Let’s say a young family (and first home buyers) have saved a deposit of 20% and are set to enter the property market. What additional costs do they need to be mindful of?
First home buyers need to be mindful of conveyancing costs, adjustments and Stamp Duty.
Conveyancing costs are for a professional conveyancer to check over your purchasing contract and to ensure that all the titles are correct. A conveyancer assists you in the settlement process.
Adjustments – these costs will be part of the settlement process. They are usually a pro-rata of any fees that have been paid or that are due such as council rates, water charges, body corporate fees etc.
With Stamp Duty, the amount owing is entirely dependent on your circumstances. It may involve the full rate, a reduced rate or you may not need to pay Stamp Duty at all.
Q. What are the best ways for potential first home buyers to build up their deposit?
There are various government incentives available, and a well-informed financial adviser can help determine the best approach for you.
One such incentive is the First Home Super Saver Scheme (FHSS) which allows people to save money for their first home inside their super fund. Again, my advice would be to discuss this scheme with an adviser who can determine how it could work within your particular circumstances.
Book a consult with one of our mortgage brokers today
Q. How does pre-approval work and why is it important?
Pre-approval is where a lender has agreed, in principle, to lend you an amount of money towards the purchase of your home but has not proceeded to full or final approval.
It’s an important step as it enables you to know your maximum available funds, thereby narrowing the search for your home. Although not a required step, it can certainly make the whole process easier. A broker can help with pre-approval.
Q. How can first home buyers ensure their home loan application is not rejected?
Speaking with a mortgage broker and getting pre-approval on a loan is a great place to start as it helps you understand what you can comfortably borrow.
I’d also suggest improving your cash flow by decreasing discretionary expenditure within your budget. This is more of a longer-term strategy whereby you would have to show the lender that you have made an adjustment to your spending habits (for example, with a short-term decrease in spending).
Our First Home Buyers Guide will help walk you through the process; from deciding whether buying is best for you, to some definitions to help you break through the jargon.
Q. What are your thoughts on buying something ‘off the plan’?
A benefit would be that you’re moving into a brand-new property and can save on stamp duty as the amount payable is on the land value and not the total value of the property.
A disadvantage is that the price of the property is locked in when you sign the contract and issues can arise at settlement time if the bank values the property at a much lower price.
Q. Do the various state governments and territories offer different incentives for first home buyers?
Indeed, there are many incentives, and they can change often so it’s best to speak to an adviser based in your home state or territory about possible concessions available to you.
In addition to the First Home Super Saver Scheme I’ve mentioned, there are government programs and grants such as a Home Builder Grant and First Home Owner Grant.
Q. It’s a bit further down the track and your clients have happily settled into their first home (hooray!). Any handy tips for those who want to pay off their home loan sooner than the loan terms allude to?
Sure. Deposit any excess savings into an offset account rather than an into your ordinary, everyday savings account. I would also encourage clients to increase home loan repayments from a frequency standpoint. For example, increase both the actual repayment amount and adjust the regularity of payments from monthly to fortnightly.
Finally, I would suggest, when appropriate, refinancing your loan and staying open to the regular review of your home loan to ensure it remains competitive. A note when refinancing though, watch out for Lender’s Mortgage Insurance and ensure the Loan to Value Ratio is greater than 80%
Thanks so much for such great insight, Anthony!
A Glossary of Key Terms
Offset Account
An offset account is an everyday bank account linked to your home loan. The account balance is then offset against the home loan. For example, if you have a home loan of $250,000 and have $30,000 in your offset account you will only be charged interest on a loan balance of $220,000.
Stamp Duty
Stamp Duty refers to the government tax you have to pay when purchasing a property. There are different rates for every state.
LMI
Lenders Mortgage Insurance. This is insurance you can expect to pay if you borrow more than 80% of your home’s value. It protects the lender, not the borrower.
LVR
Loan to Value Ratio. This figure (represented as a percentage) is calculated by dividing the loan amount by the lender’s assessed value of the property.
Conveyancer
The company or person who is responsible for the legalities that come with transferring the ownership of a property from one person to another.
Family Security Guarantee
This is when a family member acts as a guarantor to secure your deposit, providing you with a bit more borrowing power. The guarantor does not provide any funds directly to the borrower, instead, the guarantor can choose cash from a term deposit fund, savings or equity from their home to be used as security.
First Home Loan Deposit Scheme
This government initiative encourages first home buyers to purchase their home sooner and with as little as a 5% deposit.
First Home Super Saver Scheme
This government scheme is designed to help those entering the market to save faster as it allows them to save money for their first home inside their superannuation fund.
Off the Plan
Buying ‘Off the Plan’ is a property that you can buy, based on images or blueprints before it has been completed.
Settlement
Settlement is the process of finalising the exchange of a property. Lawyers or conveyancers usually conduct this process. It is the period during which time you have to pay the settlement amount in exchange for the certificate of title to the property and keys to the home/unit. The settlement amount is a property’s purchase price less the deposit already paid.
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.
