Important Notes for Home Buyers

Home ownership brings with it a sense of pride and belonging, however, it can also mean financial hardship and pain when hasty decisions are made in an emotionally charged moment.

To help reduce that pain and take advantage of the great opportunities of home ownership, we have outlined key topics to consider before purchasing your home.

Budgeting - How To Save a Deposit

There are now home loans available that require little or no deposit, but don’t get too excited. The downside of not having saved a deposit is that you will pay a high premium for Mortgage Insurance (in the thousands of dollars) for the benefit of borrowing up to 100% of the value of your home.

Ideally, your deposit should be at least 20% of the purchase price to avoid having to pay Mortgage Insurance. If you can't afford this amount, it's still beneficial to pay 10% deposit. Paying a deposit can save thousands in interest re-payments over the term of the loan and it can help avoid financial hardship when rates rise.

You should also plan ahead for those extra costs, including stamp duty, insurance, lenders' fees, legal fees, moving costs and real estate agent fees. All of this can potentially add a further 10% to the purchase price of the property!

If you’re buying your first home, the Federal Government’s First Home Owner Grant may give you a start, however, it’s usually not near enough on its own.

If you don’t have any savings and want to buy a house, the first place tostart is with a budget. The Australian Government website Understanding Money, provides tips and tools on preparing a budget.

Finding the Right Home

This might sound easier than what it actually is. The opportunities can be limitless and it can be very tempting to look at properties you really can’t afford and, in an emotional moment, commit yourself to something you’ll end up regretting.

So, before you start, sit down and write out exactly the type of home you’d like to live in - one that is appropriate to your lifestyle, savings and budget.

Apart from price, things to note down include:

Renovate or relax? Do you want to move straight in and continue enjoying your lifestyle, or are you prepared to do some renovating? If renovations are planned, you’ll need to take account of the additional costs. Also consider how much will it take in time and money to maintain your new home. This will help you decide on what materials the home is built from and the size of the property.
Location, Location, Location. Your home is more likely to appreciate in value if:
- it is close to schools, shops and public transport
- it is in a quiet area with no major or noisy developments planned
- the value of other properties in the surrounding area are higher

Size. This doesn’t just apply to number of bedrooms, but size of kitchen, number of bathrooms and size of yards and garages.

Once you’ve determined your needs in these areas, it’s time to start looking. You can do this yourself or find a trusted real estate agent, give them your list and ask them to search for you.

Always remember that this will be your home and like any important purchase, always do the checking yourself before you sign any contracts. There can be more traps in buying property than almost anything else, so always seek professional advice first.

Family Equity Loans

The rapid increase in house prices over recent years has turned the dream of buying a home into a mirage for many young people. At the same time, many parents have found that their own homes have increased in valueway beyond their expectations.

This has given rise to Family Equity Mortgages. These allow parents or other relatives to use the equity in their homes to assist family members purchase a home.

The basic requirements are:

- the borrower must be able to meet the loan repayments;
- the parent or family member providing the equity must guarantee a portion of the loan with either income, security (e.g. a mortgage ontheir home), or both, according to circumstances.

The borrower can then select the home they wish to purchase and apply for a home loan. If it’s their first home they are still eligible to receive the First Home Owner Grant. A Family Equity Mortgage negates the need to pay high Mortgage Insurance premiums. The savings on premiums can be applied to repaying the loan more quickly.

If this appeals to you, and your children have savings of 5% of the purchase price, then your guarantee may be limited to 20% of the loan. If they don’t have sufficient savings this can be provided from your home equity.

Once the borrower has achieved 10% equity in the home, the loan can be takenover in their own name, releasing you from the guarantee.

Regardless of whether you’re the family member providing the equity, or you’re the borrower, there are many financial implications involved in this type of arrangement. Before members do anything they should book an appointment with APS Benefits' Mortgage Broking service. We will help you choose the best course of action for everyone involved.