First Home Buyers - Everything You Need To Know

Derwent Finance

Everything You Need To Know About First Home Buyer Loans

Purchasing your first home is one of life’s biggest moments, and it can leave would-be homeowners filled with equal parts anxiety and excitement. The prospect of owning a home can be both thrilling and overwhelming.

Homeownership is a huge responsibility; for many, “getting there” is not easy. If you are considering the purchase of a home but have no idea where to start, our guide can put some of your fears to rest and give you practical steps to take. Read on to learn more about what you will face as a first-time home buyer.

Before You Consider the Lender, Consider the Borrower

Before diving in, looking at loan products, and filling out applications, take a little time to get your own financial house in order. You want to position yourself in the best possible light in a home loan application, and a review of your current financial situation might tell you more work is still to be done.
  • Check Your Credit Report. If you are unaware of your credit score and the details of your report, you may be unaware of factors that will work against you in the loan process. If your credit score is too low, try improving it by paying down debt, improving your debt-to-income ratio, and/or consolidating debt. Check out more tips from Experian on how to improve your credit score.
  • Assess Your Savings and Financial Situation. The amount of money you have saved for a first home deposit will play a critical role in many loan factors, such as whether you will pay lenders mortgage insurance (more on that below) or the terms you are offered. If you can deposit 20% of the property’s asking price, you will be in a good position regarding loans. However, this is a significant amount of money many first-time buyers do not have at their disposal for a residential property, and it may be in your best interest to grow your savings before you buy a home.
  • Know Your Price. Once you determine what makes the best financial sense for you, you narrow down the homes you want to see and make it easier to go through a pre-qualification process. In other words, if you decide that your price range for a first home is $300,000, you can then ask a lender to pre-qualify you for that amount so that you are ready to go when the perfect $300,000 home that suits your needs comes on the market.

What You Need to Know About Home Loans

Once you are ready to dive in and apply for a loan to purchase your first home, you will need to understand how home loans work and the various fees you may be facing. A mortgage broker can guide you through the ins and outs of loans, helping you make the best possible decision when it comes to borrowing for your first home.

Costs You Will Face Upfront

At the outset, a borrower will be faced with:

  • A deposit (ideally 20% of the purchase price) as most first home buyers do not have the cash to pay for a home outright.
  • Loan application fees are intended to cover the lender’s expenses such as property appraisals and checking the borrower’s credit history.
  • Building inspections will help you ensure the property you want to purchase is in good shape and will ensure there are no serious structural or other issues that would cost you money in the long run.
  • Government and legal fees, such as transfer duty, mortgage registration, and paperwork prepared by a solicitor in the loan closing process.

In addition to these costs, which are standard in the home loan process, borrowers may also face the costs of lenders mortgage insurance [insert link to What Is Mortgage Insurance] if they do not have a significant deposit to make on the loan.

The Long-Term Costs of a First Home Loan

Getting through the deposit, transfer duty fees, and other costs of a first-time home loan is just one part of the process. Then there is the life of the loan itself, which could last for as long as three decades!
When it comes to paying for your first home, your loan will include both principal and interest payments. The principal refers to the principal amount borrowed—for example, a $300,000 purchase price—and the interest is the additional money you owe the lender in exchange for the loan.

Regarding interest, borrowers always want to find the lowest rate possible, as these costs add up over the years. Interest is applied to loans in fixed or variable rates, or sometimes the loan will combine these in what is known as a split-rate loan.

Both forms of interest have advantages and disadvantages: a mortgage broker can help you better understand which type of loan is best for your scenario.

Assistance With Home Loans

There are several ways Australian citizens looking to purchase their first home may find assistance in the form of a home buyers grant.

If you do not have the cash on hand to make a hefty deposit or have concerns about the repayment of your loan in general, you may be able to take advantage of programs designed to help an eligible first home buyer.

One such program is the First Home Super Saver Scheme. Australians 18 and older who have never owned a home may be able to withdraw voluntary super contributions to use to make a significant deposit on a new home.

To avoid the expenses associated with lender mortgage insurance, borrowers can also apply for the New Home Guarantee, a home owner grant program sponsored by the Australian government to help first-time buyers.

At Derwent Finance, our experienced mortgage brokers can help you will every part of the home loan process as a first-time borrower. Contact us today and let us help you turn your dream of owning a home into a reality.