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Buying your own home for the first time can be exciting and challenging, with a whole range of financial issues to consider. First among them will be the type of loan you can qualify for, considering your current financial position and any government assistance that you may be eligible for. There are also a multitude of options you will need to consider, from fixed or variable loans, to redraw facilities and offset accounts. It can be confusing at first, and the more research you can undertake, the better you will be prepared to make the right decisions for the security of your financial future.
WHO IS CONSIDERED TO BE A FIRST TIME HOME BUYER?
Essentially a first home buyer is someone who has never purchased a property as their own home. Banks and other lenders generally offer special loans for first time home buyers, and the Government offers a First Home Owners Grant (FHOG) to help people trying to get into the market, and in competition with investors and those who are more established as property owners.
WHAT IS THE FIRST TIME HOME BUYER’S GRANT?
The FHOG was first introduced in 2000 as a way to help those trying to get into the property market offset the cost of the GST, and is generally considered to be a way to save on what can be the expensive cost of stamp duty when purchasing a home.
Every state and territory has differing rules for who is eligible for the grant, as well as factors such as the maximum price of the property, how much the grant will cover, the type of property you can purchase with help from the grant and the types of incentives offered. For example, in NSW the Government refined the rules for the FHOG in 2017, with changes including:
- All homes worth $650,000 or less will be exempt from stamp duty
- Lender’s mortgage insurance will now incur no insurance duty
- People who wish to build their own new home valued up to $750,000 or those wanting to purchase a new home worth $600,000 or less receive a $10,000 First Home Grant
Generally speaking, you must live in the property as your own home for at least six months to be eligible for the FHOG. Because the requirements as well as the benefits of the grant can be complex, it’s important to talk to your home loan specialist to ensure you take advantage of any Government incentives on offer to make your journey onto the property ladder as smooth as possible.
FIRST HOME BUYERS GRANT SUMMARY
Below is a summary of the First Home Owners Grant offerings in each state and territory in Australia:
| State | First Home Owners Grant offered |
|---|---|
| NSW | $10,000 First Home Buyers Grant offered to first home buyers who build a new home for up to a total cost of $750,000 or purchase a new home for up to $600,000 |
| QLD | As of 1st July 2017 the First Home Owners Grant has been reduced to $15,000 from $20,000. This is only available for first home buyers building or purchasing a new home. If the contract was signed between 1 July 2016 and 30 June 2017 the grant is $20,000 |
| VIC | Eligible first home buyers building or buying a brand new home for no more than $750,000 are eligible for the $10,000 First Home Owners Grant.
The FHOG has been increased from $10,000 to $20,000 for new homes built in regional Victoria and valued up to $750,000. This applies for contracts signed from 1 July 2017 to 30 June 2020. |
| SA | First home buyers purchasing or building a new home for up to a market value of $575,000 may be eligible for a First Home Owners Grant of $15,000. |
| WA | A $10,000 First Home Owners Grant is available for first home buyers purchasing or building a new home.
If the property is located south of the 26th parallel the maximum value of the land and building to be eligible for the grant is $750,000. If the home is located north of the 26th parallel then the value is capped at $1,000,000 for the purpose of qualifying for the First Home Owners Grant. Transactions entered into between 1 January and 30 June 2017 may be eligible to receive $5,000 boost plus the $10,000 grant or the consideration paid to buy or build the house if less than the grant amount. |
| TAS | Eligible first home buyers who buy or build a new home will receive a $20,000 First Home Owners Grant. This is available for contracts signed until 30 June 2018.
After 30 June 2018 the grant reverts back to $10,000. |
| NT | Eligible first home buyers who buy or build a new home will receive a $26,000 First Home Owners Grant.
The NT government also offers other incentives such as a Household Goods Grant Scheme of up to $2,000 for first home buyers |
| ACT | As of 1 January 2017 the First Home Owners Grant is $7,000. It is only available for the purchase of new or substantially renovated properties.
The total value of the property must be no more than $750,000 to be eligible. |
The other general eligibility requirements for the First Home Owners Grant are as follows:
- You are over 18
- You or your spouse (including de facto spouse) have never held a relevant interest in any residential property in Australia prior to 1 July 2000. However, you may be eligible if you or your spouse, including de facto spouse, have only had a relevant interest in any residential property in Australia on or after 1 July 2000 and you have not resided in that property for a continuous period of at least 6 months.
- You have not received a first home owners grant in any State or Territory, unless subsequently repaid
- You need to live in the home for a continuous period of at least 6 months
- At least one applicant is a permanent resident or Australian citizen
- Each applicant must be a natural person and not a company or trust.
Please check with your local state revenue office for the full eligibility criteria. See http://www.firsthome.gov.au/ for a list of the state revenue offices and links to their websites.
Some states offer additional grants and bonuses to first home buyers.
Please visit our stamp duty concession page for more information on other first home buyer benefits.
PREPARING TO APPLY FOR A HOME LOAN
It’s tempting just to rush into applying for a home loan as a first time home buyer, however there are some factors you need to consider before taking the plunge. These include:
- Working out your current budget. This may seem like a basic step, but many first home buyer’s fall into the trap of assuming they can afford a property without really considering their financial position or how it may change in the future. Determining your monthly income and your expenses, as well as any future changes such as needing to take time off work to look after children, will help to set a baseline for how much you can afford in loan repayments every month.
- Look at how much you may be able to borrow. Lenders will have different requirements for how much they will lend you, with most offering online calculators that can help to give you a rough idea once you provide some basic details. You can also talk to a mortgage broker who will be able to give you a more in-depth analysis of the amount of money a range of banks or other lenders will offer.
- Look at the pro’s and con’s of different home loans. Not all home loans are created equally, with some that will be more suited to your financial position and your future goals. Obviously interest rates on loans can vary between banks and lenders, but also home loan products tend to come with different options, so you can find yourself choosing between factors such as a fixed or variable loan or one with redraw facilities (with some banks offering redraw options with fees and others without). Off set accounts, in which you are able to consolidate your income and savings into one account, thereby offsetting the loan principal and reduce the overall interest you will pay over the course of the loan, are also highly popular.
APPLYING FOR A LOAN AS A FIRST HOME BUYER
Once you have an idea of the type of loan you are most interested in, as well as a good grasp of how much you can afford to pay in a mortgage and how much a bank or other lender will offer you, you can apply for a home loan. Most industry experts suggest that you get the help of a mortgage specialist at this point if you haven’t already, as the amount of paperwork required and documentation you may need can be overwhelming for anyone who has not gone through the process before.
It’s important to remember that every bank or home loan lender will have different requirements for your application. In general, however, they will need to see:
- Proof of your income – this can include pay slips or a letter from your accountant with details of your income, tax returns and financial statements
- A documented history of savings
- Any other relevant financial records such as investments
The majority of banks and lenders will require you to submit the appropriate documentation, fill out their application forms, as well as attend an interview before they will issue you with approval for the loan. If you have a mortgage lender working for you, they will be able to handle the application process on your behalf, and let you know the outcome of your application. In most cases if you are successful, you will be given a pre-approval or home loan guarantee certificate, which means that the bank or lender will loan you the amount of money you need for a property, subject to certain conditions such as the valuation of the property, it’s size and other factors. This pre-approval loan certificate will not last forever, however, with most valid for around 6 to 12 months. This should give you enough time to find a suitable property and apply for final approval.
ADVICE, TIPS AND CONSIDERATIONS FOR FIRST TIME HOME BUYERS
There are a few basic things that all first home buyers should remember, including:
- Not all home loans will be suitable for you: do your research and find one that will fit your requirements rather than simply choosing the first bank or lender who will give you money. Look for options such as loans that require as little as 5% deposits and will allow the deposit to come from a gift from family.
- Make sure all your documentation is well organised and easily accessible. Having the right financial records and other necessary documents on hand will speed up the process for you or for your mortgage broker.
- Make sure you have a contingency plan for buying your first home. This means that you can plan as much as possible for unforeseen events such as being made redundant, losing a second income or having a serious illness for any length of time, affecting your ability to make mortgage repayments. Finding a loan that is flexible enough to accommodate these kinds of changes can help.
CONTACT THE FIRST HOME BUYER EXPERTS
For over 17 years Mortgage World Australia has helped hundreds of clients across Australia to get onto the property ladder and secure their financial futures. We offer tailored advice, with high quality face to face service, and independent help with all types of home loans and mortgages.
Call Mortgage World Australia and find out how we can help you purchase your dream home today.
FAQs
Let’s look at some of the most frequently asked questions that people looking to buy their first property have.