Purchasing your first home is usually a very exciting experience, but if you are not well informed and prepared in relation to the Real Estate, Conveyance and Lending processes involved with the purchase of a property, it can quite easily turn into a not-so-nice experience
 
When purchasing your first home there is quite a lot of information that you will need to gather, research and understand; as a result there will be many questions that need answering.

Do I qualify for a loan?   How much can I borrow?
Do I need a Deposit?   Does my Deposit need to be my own savings?
No Deposit Home Loan?   Which is the Best Loan for me?
What is the First Home Owners Grant (FHOG) and How do I qualify for the Grant?
How much State Govt. Stamp Duty do I have to pay and Why are there 2 lots of Stamp Duty?
Why do I have to pay for the Lender’s Mortgage Insurance?
What is Mortgage Risk Fee and Title Insurance?   Do I need these?
Do I need Building & Pest Inspection Reports?   How do I arrange these?
What is a Strata Management Report?   Who is the Body Corporate?
Are there any other expenses that I should know about?
Can I purchase at Auction?
How do I secure a property when I don’t have a 10% deposit?
Should I use a Solicitor or Conveyancer?

There is quite a lot that you will need to know and a certain amount that you MUST know about the home buying process; and as it is your first home purchase, it is just so important that you get it right!

A CommunityBE$T Financial Services Consultant will not only assist you with your understanding and knowledge gathering by answering all your questions and sharing their industry knowledge, but they will also assist you to get it right by personally guiding you through the complete home buying process;

1. Research & Understanding
2. FHOG & Stamp Duty Concessions
3. Solicitor or Conveyancer
4. Loan Selection & Approval
5. Property Shopping & Selection
6. Contract of Sale exchange
7. Preparing to move
8. Settlement of Purchase

How much can I borrow?
The amount that you can borrow is based on lender specific calculations commonly known as ‘Affordability & Serviceability Calculations’.

In general terms:
- your ‘Serviceability’ takes into account a combination of your Incomes, Taxation, your Liabilities that will exist after the purchase, a Loan Assessment Interest Rate and the Loan Term (As a guide only, your total annual debt repayments i.e. mortgage, car loan, credit card etc should not represent any more than approx. 40% of your Annual Gross Income);
- your ‘Affordability’ takes into account the Purchase Price; your Contribution towards the purchase (Deposit) and whether your Deposit is borrowed, Genuine or Non-Genuine Savings; whether or not you are applying for FHOG and the Costs associated with the purchase;

3% - 5% Deposit: Borrowed, Genuine or Non-Genuine Savings?
Generally speaking, most traditional lenders require you to have a minimum 3-5% deposit which can come from borrowings and/or genuine or non-genuine savings and consequently they will grant you a loan from 95% to 100% of the property value or purchase price (The loan percentage is commonly known as the LVR – loan to value ratio). Having a Deposit or Savings to contribute towards the purchase of a home can be important when trying to obtain a home loan with standard home loan rates and costs. Generally speaking, the higher the LVR, the higher the home loan rate and loan costs.

As a guide, the general lender requirements for Deposit/Savings are as follows;
For loans between 97% - 100% LVR
The borrowers’ contribution towards the purchase is to include a minimum personal contribution of 3% or 5% genuine savings. Such personal contribution should have been held or accumulated as savings over a period of at least 6 months - 3% savings or 3 months – 5% savings.
For loans between 95% – 97% LVR
The borrowers’ contribution towards the purchase can consist entirely of non-genuine savings such as non-repayable gift, proceeds from sale or savings held less than 3 months provided it does not consist of any borrowed funds.
For loans up to 95% LVR
The borrowers’ contribution towards purchase can consist completely of unsecured borrowings such as a personal loan or repayable gift.

Ancillary Costs
When arranging your Home Loan, apart from your Deposit it is also important to understand the impact that other ancillary costs may have on the amount of loan that you require.
As a guide, if you were purchasing a $345000 property in NSW and qualified for the $7000 FHOG; with a 95% loan ($327750) you would still be required to contribute approx. $15000 of your own money or with a 100% loan ($345000) you would still be required to contribute approx. $8000 of your own money, to be able to complete the purchase of the property.  

Little or No Deposit/Savings Available?
If you have little or no deposit/savings to contribute towards the purchase of your first home, then maybe a specialist ‘non genuine savings 100% home loan’ or ‘106% no deposit home loan’ or ‘guarantor/family pledge home loan’ may be the loan for you?

Being mindful,

• that the costs associated with a home purchase don’t entirely cease on the day you move into your home; and
• the amount of interest that you pay over time is more important than the loan interest rate; and
• a person’s financial circumstances will usually change over time,

than one of these specialist loans may form the basis of a perfectly good borrowing strategy that is better suited to your home purchase than a standard home loan product?

On the basis that these are specialist products and also generally have a higher loan rate and costs, care needs to be taken when assessing which loan may suit you best.

Non-Genuine Savings 100% Home Loan
This type of loan allows you to borrow 100% of the lesser of the value or purchase price of the property (100% LVR). But even though you may be borrowing the full purchase price, you may still be required to personally contribute a small amount of funds towards the purchase to cover ancillary costs. If a contribution of funds is required, the borrower is not required to show any genuine savings and any contribution required can consist of a gift, proceeds from sale or borrowings.

Warning:
Various lenders sometimes refer to a 100% Home Loan as a “No Deposit Home Loan” which in reality is somewhat misleading because “No Deposit” will only truly apply with properties below a certain price, dependent on whether you are a legitimate first home buyer or not and the state in which you are purchasing.
Within NSW, a property with a purchase price above $220,000 would usually require some type of personal contribution to be made towards the purchase. This is so, because when the property price increases above $220,000 the ancillary costs usually exceed the $7000 FHOG.

Let’s look at an example;
Elmore is a first home buyer and wishes to purchase a $375000 house in Sydney. As he qualifies for the First Home Owners Grant he is entitled to receive full stamp duty concessions as well as the $7000 FHOG. If approved for a Non-Genuine Savings 100% loan, the lender will supply him with a loan for $375000. The total ancillary costs associated with the purchase and relocation to his new home will be approximately $16500.
This means that he will need to personally contribute approx. $9500 towards the purchase to cover any ancillary costs after taking into account the $7000 FHOG.

If the purchase price of your property means that you are required to personally contribute funds towards the purchase, remember that there is lender flexibility as to where those funds can come from when using this type of loan.

 106% No Deposit Home Loan
This type of loan allows you to borrow up to 106% of the value of the property (106% LVR) and is to be used for the purchase of established properties only (No vacant land/construction). The borrowing of funds in excess of 100% of the property valuation is limited to costs that are associated with the purchase of the property up to a maximum of 6% of the property valuation.

Maximum amount of Loan funds that can            - 100% of property valuation
be used towards Purchase Price

Maximum amount of Loan funds that can            - 6% of property valuation
be used towards Costs
(Costs may include Property Transfer Duty, Mortgage Stamp Duty, Mortgage Risk Fee, Solicitor/Legal Fees, Loan Application Fees, Settlement expenses)
      
Borrowers should ideally be applicants with a strong and reliable income stream, stable employment and minimal credit history anomalies.

This type of loan may be suitable for:

• a couple as joint borrowers, where one person does not qualify as a legitimate first home buyer for the purposes of FHOG and Stamp Duty concessions,
• those who wish to get into the property market earlier than anticipated,
• those who wish to retain their savings for other purposes.

Guarantor/Family Pledge Home Loan (GFP)
This type of loan allows you to borrow up to 110% of the value of the property (110% LVR) and avoid the costly expense of Lenders Mortgage Insurance or Mortgage Risk Fee which could represent a saving of thousands of dollars.

All you need is a sponsor (family or friend) to provide a limited guarantee secured by the equity in their residential property for the amount you need to borrow in excess of 80% of the property value.
The borrowing of funds in excess of 100% of the property valuation is limited to costs that are associated with the purchase of the property up to a maximum of 5% of the property valuation with a further 5% being available for debt consolidation. A GFP Loan can only be used for the purchase of established properties (No vacant land/construction).

Buy your home sooner with NO deposit and NO mortgage insurance fee. Save thousands in mortgage insurance premiums and loan interest as these loans are based on standard home loan interest rates!

How does it work?
Let’s look at some examples of how you may use a GFP Loan:
Joseph and Rosie are a couple in their early 20’s who wish to purchase a $360,000 home on the outskirts of Sydney. They have managed their money very well over the past 18 months, having paid out their car loan of $9000 and saving an extra $2,000 towards the purchase of a home. They are First Home Buyers who qualify for the FHOG and Stamp Duty exemptions. Their concern is that property values in the area where they wish to purchase are on the increase and will have increased dramatically by the time they have accumulated sufficient savings/deposit.

Purchase Price	$360,000
Mortgage Insurance	$  11,000
Purchase & Relocation Costs	$    5,000
		$376,000
100% Home Loan	$360,000
FHOG	$    7,000
Savings	$    2,000
		$369,000
Savings still required		$   9,000

Now let’s look at how their situation changes with a Guarantor/Family Pledge Loan:

Purchase Price	$360,000
Mortgage Insurance	Nil
Purchase & Relocation Costs	$    6,000
		$366,000
80% Home Loan	$288,000
GFP Loan	$  78,000
FHOG	$    7,000
Savings	$    2,000
		$375,000
Excess Personal Funds after purchase		$   9,000

Joseph & Rosie have $9000 that they can use towards furnishings, landscaping etc or keep it as savings for a rainy day.
Plus they have saved a whopping $11000 in mortgage insurance premium!

………………………………………………………………………………

Blair and Alysha are also in their early 20’s and wish to purchase their first home. They have spotted a $360,000 home on the outskirts of Sydney which appeals to them as a good purchase because they believe that with a little bit of tender loving care, some elbow grease and about $9000 to spend on the home they could increase the value of the property by approx. $30,000/$35,000. They also feel that Sydney property prices are on the increase and wish to get into the market sooner than later to take advantage of any upswing in values. Even though they are First Home Buyers who qualify for the FHOG and Stamp Duty exemptions, their concern is they will miss out on this opportunity, as they only have $2000 in savings due to the cost of their recent wedding and still have $10,000 owing on their car loan which has a value of $8000.

Now let’s look at what they may be able to achieve with a Guarantor/Family Pledge Loan:

Purchase Price	$360,000
Mortgage Insurance	Nil
Purchase & Relocation Costs	$    6,000
		$366,000
Car Loan	$    8,500
		$374,500
80% Home Loan	$288,000
GFP Loan	$  86,500
FHOG	$    7,000
Savings	$    2,000
		$383,500
Excess Personal Funds after purchase		$   9,000

Blair & Alysha are able to seize a good purchase opportunity, consolidate all their debts into one loan and retain $9000 in available funds which they can use towards refurbishments (tender loving care) of their home.
Result….

Saving on Mortgage Insurance Premium	$11,000
Interest saving from early payout of car loan	$  1,500
Increased Value of Property after refurbishments	$30,000

Before the purchase they had a neutral asset/liability position (Assets of $10000, Liabilities of $10000).

After the purchase and refurbishments, they have surplus assets of $14500 (Assets $398000, Liabilities $383500). The most important point of note is that the value of the home is greater than the loan amount!

The Guarantor Family Pledge Loan can prove to be a very powerful mortgage when combined with an appropriate purchase and/or debt consolidation strategy!

When purchasing your First Home, don’t take chances with a normal mortgage broker or lender, because what at first may appear to be the cheapest and best home loan doesn’t always turn out to be so.

Can you afford to make a mistake with your First Home Purchase?

To explore all your First Home Buyers options make an appointment to meet face to face with a CommBE$T Specialist Home Loan Consultant by phoning the  Finance Centre on (02) 4633 8700 or simply email us and we will contact you.

* Loans subject to application and approval. Terms, conditions and eligibility criteria apply. Fees and charges may be payable.