Buying your first home is likely to be one of the biggest financial decisions you will ever make. The good news is that you may be eligible for government assistance, including the First Home Guarantee Scheme, the First Home Owner Grant, and the Victorian Homebuyer Fund Shared Equity Scheme as well as potential stamp duty concessions.
However, even if you are eligible for this upfront assistance, it is crucial to understand all the costs involved with buying a home, how to finance your purchase, and how to budget for your repayments. Here are some things to look out for as a first home buyer.
First Home Guarantee Scheme
The First Home Guarantee Scheme is a federal government program that allows eligible applicants to buy a home with a deposit of 5% without having to take out lenders’ mortgage insurance (LMI), which can cost well over $10,000 on an average home loan.
You can find out more about the First Home Guarantee Scheme, including the eligibility requirements, here.
First Home Owner Grant
The First Home Owner Grant in Victoria is a payment of $10,000 available to eligible first home buyer applicants who are buying a brand new dwelling or building a home up to the value of $750,000. The $10,000 can be used as part or all of your deposit for your first home loan.
The Victorian Homebuyer Fund Shared Equity Scheme
Under this scheme, the Victorian government contributes up to 25% of the value of a home for eligible applicants in exchange for equity in the property. It is a shared ownership arrangement.
The government’s purchase funds are interest-free and you can repay it over the term of your home loan to progressively increase your equity. If or when you sell the home, the government is entitled to their share of the sales proceeds based on their remaining equity percentage at the time of the sale.
You can find out more details about this shared ownership scheme and its eligibility requirements here.
The hidden costs of buying a home
It is important to understand that the purchase price of a home is not its total upfront cost. Additional costs can include:
- Land transfer duty if your property is valued over $600,000 (though you are entitled to a concession if it is valued between $600,000 and $750,000).
- Lender’s mortgage insurance (if you have a deposit less than 20% and don’t qualify for the First Home Guarantee Scheme or the Victorian Homebuyer Fund).
- Conveyancing costs to legally transfer the title of the property to your name
- Loan application fees
- Property insurance
- Moving costs
- Furniture and other incidental costs to set up your home as your primary residence.
Setting a budget for your first home
Before you start searching for your first home, you should find out your budget (i.e., how much you can borrow so you know the price range of properties that you can afford). The best way to do this is to arrange a finance pre-approval. The maximum purchase price you will be eligible for will be determined by different factors including both income and the level of deposit that you are able to contribute. This will vary across lenders based on the differences in their credit policies and how they relate to your specific application. It is important to understand this comparison when selecting a financier to partner with.
Getting finance pre-approval
Applying for a finance pre-approval will involve you providing your financial details for assessment by a lender. This will include details of your current income, expenses, assets and debts, so the lender can assess how much you can afford for your home loan repayments.
Using a mortgage broker
Mortgage brokers can help you to compare the range of home loan pre-approval options available from different lenders so you can decide on the one that is most suitable for your needs. This may be to maximise the loan amount and subsequent purchase price, or it may be to find the lowest interest rate. Whatever the priority is, our in house mortgage broker can assist you in comparing and understanding the different options available for first home buyers. If you would like to discuss your lending options when buying your first home, please contact our mortgage broker, Brett Elliot on 03 8419 9800 or book a meeting here.
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