INSIGHTS WITH EVALESCO
First home buyers often feel they are chasing a moving goal. Despite saving diligently their savings rate is not keeping pace with property growth. This can be frustrating and exhausting and many wonder if the dream of home ownership can be realised. Thankfully, there are options.
Jules Knox, Evalesco’s Director and resident lending expert has some valuable advice for first home buyers. She sees would-be buyers who are ready to buy and those who are putting a plan together to enter the market in the future. Jules says, “If buyers have the borrowing capacity but do not have the 20% deposit, they can take advantage of the First Home Loan Deposit Scheme which has recently been expanded and extended. It does have some criteria and hoops to jump through, however it can help buyers purchase their first home with only a 5% cash deposit”.
Another way to reduce the savings deposit required is with a family guarantee loan, where a parent or family member allows the first home buyer to use the equity in their home as security, enabling them to borrow more without paying Lenders Mortgage Insurance (LMI). However, the first home buyer needs to be able to show the lender that they can comfortable service the whole loan using their own income, as the family members income cannot be used towards serviceability.
It is also worth looking at whether paying Lenders Mortgage Insurance (LMI) may be a viable option, to allow a prospective homeowner to get into the market sooner. LMI is usually payable where borrowers take out a loan that is higher than 80% of the property’s value – it is an insurance policy that protects the bank in the event of the loan being defaulted upon. To avoid paying LMI, buyers need to have enough cash savings to cover the remaining 20%, as well as the purchase costs, such as stamp duty, legal fees, etc. Jules says, “Given the increase in property prices, we are often seeing the first year’s growth in a property’s value outstrip the cost of the LMI, so in that case it works out better to buy sooner and pay the LMI, than wait another year to save the extra deposit.”
For those planning for the longer term, accessing the government’s First Home Super Saver Scheme is another effective strategy to consider. “Being able to work with a borrower ahead of time allows us to devise the best plan based on their circumstances and available options”, says Jules.
Buying your first home has never been easy. It requires planning, discipline and sometimes a lot of patience. Despite the alarmist headlines, there are a number of options worthy of consideration for budding property buyers that may be able to get them into their first home sooner, and with the right advice, save them from making any costly mistakes.
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One thing to consider is the interest rate on your home loan in comparison to the rate of return on your super fund. Before making a decision, it’s also important to weigh up your stage in life, particularly your age and your appetite for risk. Whatever strategy you choose you’ll need to regularly review your options if you’re making regular voluntary super contributions or extra mortgage repayments. As bank interest rates move and markets fluctuate, the strategy you choose today may be different from the one that is right for you in the future
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