Most people can afford mortgage repayments, it’s saving for the deposit that is difficult. ME will lend first home buyers up to 97% at only 3.89%! There are no up-front or ongoing costs, including no ATM fees. New stamp duty exemptions mean first home buyers pay NO STAMP DUTY! There is no other lender in the market offering anything like this. Please contact me if you want to see how much can borrow and what your repayments would be.
A little planning upfront saves a lot of grief down the road – find out how to do your first home buyer prep right.
Saving a house deposit calls for a “sure and steady” approach, and an important starting point is to develop a savings plan you can comfortably live with. Your savings plan should ideally adopt a two-pronged approach – combining regular saving backed up by lump sum deposits. Here’s what’s involved.
Saving a house deposit may not happen overnight but it can be done by consistently tucking away cash on a regular basis. Drawing up a budget will help you understand how much you can realistically save each pay day. Then make it happen by organising an automatic transfer of funds out of your everyday account and into a dedicated savings account.
Look for a savings account that pays a consistently strong rate of interest. Some savings accounts only pay the top rate for a limited period, after which the interest rate can drop significantly.
Lump sum deposits
It’s likely that throughout each year you’ll receive lump sums of cash such as a tax refund, an annual work bonus and even gifts of cash for birthdays and other special occasions. Adding these amounts to your first home deposit doesn’t just give your savings a valuable boost, it can keep you motivated to reach your saving goal.
Cutting costs to save more
Your budget can also highlight areas where spending can be trimmed to boost regular savings. Every dollar counts when you’re saving a home deposit, and cutting back on luxuries like gym subscriptions or dining out and takeaways can provide extra cash to fast track your savings. It may mean giving up a few non-essentials for a while but the reward will be buying your first home sooner.
Here’s some great news. At ME we understand that it’s not easy saving a big deposit, that’s why we let you borrow up to 95% of your home’s value. It means you may only need a 5% deposit, and that lets you get into your own home sooner.
A bigger deposit is better – if you can manage it
The less you borrow, the lower your home loan repayments – so it’s worth saving a reasonable deposit if you can manage it. Check out our Repayments Calculator to see how your deposit can make a difference to the loan repayments.
Lenders Mortgage Insurance – If your deposit is below 20% you’ll be asked to pay lenders mortgage insurance (LMI). This protects the lender if you are unable to keep up the loan repayments.
How much LMI you pay will depend on the size of your deposit. You may be able to add the cost of LMI onto your loan so that it can be paid off gradually.
FIRST HOMEBUYER TIP
Don’t forget to budget for legal fees, pre-purchase inspections and building/contents insurance on your first home as well as stamp duty.
Other strategies if you have a small deposit
Co-buying– Okay, it’s not for everyone but teaming up to buy a property with friends or family can boosting your purchasing power and let you share the cost of maintaining your home. There’s a lot to think about if you’re buying a home with someone else and you need to plan for it carefully.
Cash gift – Receiving a gift of cash can make your life a lot easier but it may not always get your home loan application over the line. We like to see that you can comfortably manage a home loan, and cash gifts may not count as evidence of genuine savings. That doesn’t mean the money won’t come in handy. A cash gift can be used to cover other home buying costs like legal fees.
FHOG – a financial helping hand
If you are a first home buyer you may be entitled to the government’s First Home Owner Grant. In many states this is only available if you are building or buying a brand new home.
The true cost of buying a home goes well beyond the purchase price. Take a look at our top ten home buying costs with tips on ways to save
1 – The price of your home
This is important – the listed price of a property is not set in cement, and some hard bargaining can see you save thousands of dollars. As a general rule, try knocking 10% off the listed price – maybe more if the property has been on the market for a while. Bear in mind, lenders generally want to see a deposit of at least 5%, so don’t commit to a property you cannot afford.
TIP: Try to avoid giving the impression you love the place. It’s a lot harder to haggle for a discount if the agent can see you’re completely hooked on the property.
2 – Stamp duty
Stamp duty is levied by all state/territory governments so it’s as unavoidable as a pair of socks from grandma on your birthday. But there are ways to trim the tab. As duty is based on the price paid for a property, buying vacant land first and building later can mean paying less duty than if you purchase an established home. Either way, the more you can negotiate on price, the more you’ll save on stamp duty.
TIP: Contact the Office of State Revenue in your area for details of concessions. Some states offer savings for first home buyers and/or new home builders.
3 – Conveyancing
Conveyancing covers everything from reviewing the contract of sale through to transferring your new home into your name. It’s a job that can be done by a solicitor, but you may be able to halve the cost by using a professional conveyancer. Budget for around $1,000 though fees vary widely so shop around. TIP: Line up a conveyancer or solicitor before you start home hunting. That way you can act quickly (and maybe cheaply) when you find the right property.
4 – Pest and building inspection
A pest/building inspection isn’t essential but it will reveal structural faults, dodgy building work or pest problems the vendor may be trying hide. Allow around $500 for a combined report.
TIP: A poor pest/building report can be useful in price negotiations – be sure you can afford any repairs once the place is yours.
5 – Strata report
If you’re buying an apartment, villa or townhouse, a strata report (cost: around $300) will show if any major building work is on the agenda – an expense the owners will have to cover.
TIP: Strata reports can be provided by independent firms or trim the cost by asking your conveyancer to provide one.
6 – Loan fees
Home loan application fees can range from $0 through to over $700, so it pays to compare between lenders. Watch out for ongoing account-keeping fees too. They quickly stack up.
TIP: Use the ‘comparison’ rate to discover the true cost of a loan.
7 – Lenders mortgage insurance (LMI)
LMI applies if you borrow 80% or more of your home’s value. LMI protects the lender, not you, and that makes it a cost worth minimising. The easiest way to do this is by saving the largest deposit possible.
TIP: You may be able to add LMI to the loan rather than paying it upfront. This means paying interest on the premium, which bumps up the cost.
8 – Home building insurance
As soon as you pay a deposit you have a financial interest in a property. At that point you need to take out home building insurance.
TIP: Save on premiums by arranging cover online or ask about a loyalty discount if you hold multiple policies with the same insurer.
9 – Utilities
Connection fees for power and/or gas can be around $80. Allow more if you’re adding internet and pay TV.
TIP: This is a good time to shop around for energy providers – it could see you save a bundle in power bills.
10 – Furniture removal
Moving costs can range from a case of beer and a barbecue for a few mates with a ute through to a several thousand dollars for a full-service removalist. Work out what’s affordable for you.
TIP: Take out home contents cover as soon as you’ve settled into your new home. Like to learn more? Check out the Home Buying episode on ed – ME Bank’s free online school of money. It could put you in the driver’s seat when it comes to buying a home.
When you’re in the market for a first home it pays to take a fairly skeptical view of the ways homes are described in marketing material.
There is a seemingly endless menu of slogans and half-truths used to describe listed properties. You can’t blame selling agents for putting a positive spin on things but buyers soon discover the reality is often far less appealing than the ad.
Here’s what to be on the lookout for.
It’s deceptive – Uh huh…it’s likely to be deceptive for all the wrong reasons. Like the industrial smoke stack lurking behind the property that didn’t appear in the images thanks to the magic of digital photography.
A secret garden pool – And it’s been kept a secret because if the council knew about the mosquito-infested swamp in the backyard they’d demand you call in a plumber.
A colourful past – Thankfully real estate agents are prevented by law from not disclosing all ‘material facts’ about a property. So if the home has been the scene of a serious crime the agent may have to fess up. But if it was a former bikie hang-out…well, you’re on your own.
Handyman’s dream/ bring your paintbrush/renovate or detonate – It’s amazing how many ways there are to describe a rundown dump without actually referring to it as a rundown dump. Unless you have deep pockets, solid renovation skills and a preference for dust and noise, be very careful when you see ‘Calling all builders’, or ‘Looking for a new lease of life’. They all belong to the collection of weasel words that say the property is an uninhabitable wreck.
Full of surprises – Read: full of termites, dangerous wiring and with an unapproved extension out the back. A pre-purchase pest and building inspection could be a good idea for these homes.
Compact/cosy/petite – Be sure to bring a few small kids along to the Open Home inspection. Chances are the place is so small they’ll be the only ones who can fit inside.
Back to nature/abundant wildlife – Wear long pants to avoid being bitten by the ticks, fleas and spiders that have taken up residence in the backyard.
Don’t just read between the lines of marketing material for homes. Take a good look at how your first home loan works too.
Plenty of lenders use gimmicky market names but what you really need is a home loan with a competitive rate and the savings of zero or low ongoing account fees. That spells good value in any language.
Stories of FHOG fails regularly hit the news, and FHOG applicants who fudge their details typically get found out. That’s because state revenue offices, which administer the FHOG, are able to trawl through everything from car rego details, the electoral roll and even mobile phone records to ensure grant recipients are genuine first home buyers.
Big blunders have been uncovered
In some cases, FHOG recipients have failed to declare their spouse has previously owned a home (a big no-no). Others buy as investors notowner occupiers (another danger zone). Some have committed straight-out identity fraud, creating fake IDs to get multiple grants.
A recent case from NSW hit the headlines, when a Sydney woman was ordered to pay back her FHOG because she spent too much time at her boyfriend’s place. What clinched the outcome was the testimony by the woman’s housemate that the owner rarely showed up at the property, and the whole thing smacked of being a rental investment not a true first home.
Keep it above board. Know what’s involved
The bottom line is to stick to the facts when applying for a FHOG. If you’re not a genuine contender, you could be asked to repay the Grant plus penalties. At worst you could end up doing time behind bars.
Who should handle the legal details of your first home purchase?
You’ve found the property you love. The price is right. Your offer is accepted. Now it’s down to the nitty gritty of conveyancing. Who ya gonna call?
Skip the DIY approach
Conveyancing covers all the legal aspects of buying your home and transferring the property out of the vendor’s name and into your own. It’s a job that in theory at least, you could tackle yourself. But unless you have some rock solid legal credentials it’s unwise to take a do-it-yourself approach to conveyancing.
That’s because conveyancing can be both complex and time consuming. It involves examining the sale contract for any hidden nasties; checking if there are unpaid rates or land tax owing on the property; and researching local government records for any planned developments, illegal building work or unresolved disputes that could affect the place.
If that’s not enough to convince you to use a professional, conveyancing also includes calculating the council and water rates owing on the date of settlement, and overseeing the change of title with the relevant government body in your state or territory. It’s a lot of work. So don’t be fooled by those cheap-as-chips online conveyancing kits that make the job sound easy. Press on to find expert help from either a registered conveyancer or a solicitor.
Focus on a few key issues to narrow down your choice
Not only are there hundreds of loans to choose from, some are marketed using names and descriptions that don’t really say much about the loan and how it works.
The thing is, home loans are a pretty straightforward product and there is really only a limited number of variations. So let’s nail the basics and see what’s involved.
Variable rate loan – This is the most popular choice of home loan. The interest rate you pay can vary up – or down – in line with market rates, and that means your monthly repayments can also change over time.
Fixed rate loan – The rate you pay is ‘locked in’ for the period you choose – usually one, three or five years with most lenders though ME offers fixed terms anywhere from 1-7 years. By fixing your rate, your monthly repayments stay the same regardless of movements in market interest rates. When the fixed period ends your loan reverts back to a variable rate.
Why choose a variable rate when a fixed rate offers certainty?
Good question. A fixed rate makes budgeting easier and you’re protected against possible rises in interest rates. On the downside, fixed rate loans tend to be less flexible – and there’s always the possibility that rates could fall leaving you paying a higher rate.
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If you’re not sure whether to go fixed or variable, ME’sFlexible Home Loan gives you the option to split your loan between fixed and variable rates. You benefit from the certainty of a fixed rate plus the flexibility of a variable rate.
‘Basic’ loan or more features?
If you’re looking for a low variable rate ME’s Basic Home Loan could be the solution. We haven’t scrimped on features though – you save even more with fee free extra repayments and redraw.
If you’re looking for more features including a fixed rate option, ME’s Flexible Home Loan offers the freedom to customise your loan to suit your needs.
FIRST HOMEBUYER TIP
Don’t just look at the loan interest rate – be sure to check if fees apply as these can quickly stack up. ME home loans let you save with $0 application fee and $0 account-keeping fees*.
Pay off your loan sooner
Paying more off your loan is a simple way to clear the balance sooner and save a bundle on interest. However, you might still want some flexibility to access your extra repayments when needed. Two quite different loan features help you do just that.
Redraw lets you withdraw any extra repayments you’ve made on your variable rate loan, so you can pay off the loan sooner knowing you have back-up cash to cover any unexpected bills.
Offset can be a smart way to use spare cash. The balance of your ME Everyday Transaction Account is deducted from (or offset against) the balance of your variable rate Flexible Home Loan when monthly interest is calculated. If you have, say, $10,000 in your ME Everyday Transaction Account and a $400,000 variable rate loan, the interest cost will be based on a loan of $390,000. Your regular repayment stays the same but as the interest component is reduced, more of each payment goes toward paying off the loan. Meanwhile, you have at-call access to your money.
Which is better offset or redraw?
Every extra payment, no matter how small, helps you save on interest and pay off your loan sooner. That makes fee-free redraw a must-have feature, and that’s why it’s part of ME’s Basic Home Loan.
Offset can work best when you have a reasonable balance in your ME Everyday Transaction Account. We understand that cash may be tight when you buy your first home but things won’t stay that way for long, and an offset account could really put you ahead with your loan over time.
If you’re looking for an action-packed drama filled with heroes, nail-biting moments and adrenaline-charged excitement, skip the latest cinema blockbuster and head to the nearest property auction.
Auctions can offer big pluses – like the chance to secure your dream home at a price that truly reflects market value. But successful buying at auction calls for some additional work behind the scenes, and knowing what you’re up against is a vital step in mastering the auction game.
Step 1 – Be clear on how auctions work
Know how auctions work in your state/territory – there can be minor variations in regards to cooling off periods, deposit requirements and what you need to do to register as a bidder. The selling agent can provide details or check out the website of the Office of Fair Trading in your area to get up to speed with the fine print of auction rules
Step 2 – Attend at least one ‘practice’ auction
Aim to attend at least one property auction where you are an impartial observer – it’s a great way to get the hang of how auctions work. It can seem as though there are multiple buyers, vigorously working their phones however the reality is often quite different. Most auctions are dominated by just a handful of bidders especially as the bids climb higher. So don’t let a packed auction room deter you, you could be up against far fewer genuine bidders than there appears to be.
Step 3 – Have conditional loan approval in place
Confidence is everything at auction, and the biggest confidence booster available is having certainty about your borrowing capacity. ME provides conditional loan approval, meaning you can head to the auction knowing exactly what you can afford as your highest bid. Speaking to ME before you head off to the auction lets you bid with confidence, free from concerns about being knocked back for loan finance if you are the winning bidder on the day.
Step 4 – Bypass the lemons
Be sure to organise a pre-purchase pest and building inspection for any property you’re thinking of bidding on. Yes, it’s an extra expense but it can be money well spent if it turns out the home has a pest problem or structural issues like dodgy wiring. Being the winning bidder on a lemon property is no win at all.
Also arrange for your solicitor or conveyancer to check the sale contract too so that you know exactly what you’re buying into – warts and all.
Step 5 – Stay frosty
Auction sales can be over in a matter of minutes, and along with the theatrics of a fast-talking auctioneer, interested buyers can feel intense pressure to raise their bid. Moreover, the action occurs in the very public forum of the selling agent’s rooms or the front yard of the home being sold.
Handling the pressure of an auction calls for a cool head. Do not allow your emotions to take over – be prepared to walk away if bidding goes beyond your purchase budget. If you don’t trust yourself to remain disciplined, consider using a buyer’s agent to bid on your behalf.
Disclaimer: This is general information only and should not be taken as financial advice. Please speak to a Shore financial planning professional before making a decision on your home loan.