Six Steps to Owning Your First Home
The best advice is to talk to Six Steps to Owning Your First Home a credited mortgage broker or finance broker as early as possible, so you know what you need to do.
- Check your credit history.
The simplest way of doing this is to contact Equifax and request a free copy of your credit report. (https://registration.my.equifax.com.au/eligibility)
Or alternatively you could request a Mortgage Broker such as myself to do it for you. When you receive your report, check for defaults, court judgements and any other “nasties” on your file. Or similarly ask an expert to check. Most people should have a clean credit report.
- Calculate your savings
Generally, you will need at a minimum 5% of the purchase price of the property you are buying. There are some lenders that will accept less but you need to have at least 5% to be eligible for the Federal Government Guarantee Scheme.
Genuine savings means you have held that money in your bank account for three months or you have progressively saved it over the three months.
Rent can be used by some lenders to offset genuine savings.
- Work out how much you can Borrow
You can use online calculators, but they will not be that accurate. You can go to a specific lender and they will inform you of how much you can borrow with that lender.
Given the amount you can borrow varies significantly between lenders you can obtain an indication of the range of borrowing power between different lenders by talking to a Mortgage or Finance Broker.
Getting rid of debts including buy now pay later and reducing your limits on credit cards all increase your borrowing power or increase the amount you can borrow.
- Work out how much the repayments are
If you can borrow X, what are the repayments and are you comfortable in repaying that amount each week or month? If you are not, reduce the amount you plan to borrow.
Remember with interest rate increases and decreases your repayments will be affected. So, you need to make sure you can still afford the repayments if interest rates rise.
You can work out the repayments using an online calculator or ask your lender or mortgage broker.
- What Government incentives are available to me?
Work out which Government Grants, Incentives and exemptions you are eligible for.
This is best done by a mortgage broker or lender that is a partner in the Government Guarantee Scheme, as there are all sorts of rules!
- Do the math of what value property you can buy
With this information a lender or finance or mortgage broker will be able to work out what value property you can afford or will be able to afford when you increase your savings.
Important Terms to know:
Loan to value Ratio (LVR) divided by the value of the property times 100. All lenders have specific LVR they will lend up to – some 90% some 95% and some 97% with another variation of whether the Lenders Mortgage Insurance is included in the LVR cap or not.
Lenders Mortgage Insurance(LMI)
Lenders Mortgage insurance protects the lender against you defaulting on the loan. Generally speaking, it is payable above an 80% LVR.
The Federal Government Guarantee Scheme gives a guarantee instead of you having to pay the lenders mortgage Insurance.