Saving for your first home? Here’s what to consider
So, you’ve decided you’d like to own your first home. Navigating the buying process can be daunting at first and without some guidance, it can result in some hefty outlays that you didn’t account for!
We take a look at some of the important financial components to consider when saving, to ensure all bases are covered when the time comes to make the big purchase.
It’s a good idea to know how much a bank is willing to lend you, which is known as your ‘borrowing power’. This amount is worked out based on your current financial position including your salary, savings, expenses, assets and debts (such as credit cards, higher education, personal loans, etc.).
Most banks have an online calculator to give you an estimate on your borrowing power, but it’s wise to speak with either a mortgage broker or a representative at your preferred bank to assess your individual circumstances in depth.
Once you’re aware of your borrowing power, you can research the property market to identify what’s within your budget. The largest sum of money you will need to have saved up is your deposit.
Whilst some lenders will allow you to borrow over 80% of the property’s value, it’s important to keep in mind that in this scenario, you will either need to have a guarantor or pay Lender’s Mortgage Insurance (LMI). LMI is a fee applied directly to your mortgage by the lender for added financial security, as you’d be borrowing a higher amount. This figure is calculated as a percentage of the borrowed amount and applied to your mortgage annually.
Property valuation is the process of engaging someone to give a formal opinion on the market value of a property, based on recent sales in the area, size and market rent. This is then used to formulate the property’s worth, and therefore how much you will need to borrow to purchase it.
Grants & Concessions
If you’re a first home buyer in the ACT, you should check your eligibility to receive the First Home Owner Grant (FHOG) by visiting ACT Revenue Office’s page. If you’re a first home buyer in NSW, visit the NSW Government’s Revenue page to check your eligibility.
These grants are aimed at providing financial assistance to eligible people buying their first home, and can save you thousands of dollars on fees such as Stamp Duty.
Stamp Duty is a compulsory tax imposed on home loans (as well as other acquisitions), and is worked out as a percentage of the value of your property. That means, the more expensive your home is, the more you’ll pay in Stamp Duty.
It’s important to be aware of exactly how much this will be and whether you’re entitled to any grants or concessions as outlined above, as the full amount must be paid within 30 days of settlement if you are required to pay it.
Legal & Conveyancing Fees
Buying property requires a lot of legal paperwork that must be formally acknowledged and signed. Conveyancing is the area of law that handles this part of the process, which involves the official transferral of property from one owner to another, in accordance with Australian legislation.
To ensure you fully understand your contractual obligations, a solicitor specialising in this field or conveyancer should be engaged. They will be able to highlight any conditions that you should be aware of and ensure you understand what your contract outlines. Conveyancing fees can vary so do shop around, but you should be prepared to budget approximately $1000 for this component.
If you’re purchasing a home you plan to live in, the settling in costs can add up quickly and take you by surprise! Be sure to consider all aspects of moving in, from packing materials such as boxes and packing tape, professional removalists, end of lease clean (if you’re coming from a rental property), new furniture and setting up your utilities at your new home.
Buying property is an exciting decision but one that should be researched thoroughly. Whilst we have aimed to cover some of the main financial components of buying property; every person’s situation is unique, so it’s important to do your own research and speak to a financial expert to assess your situation before making any decisions.