The 8 Big Questions First Home Buyers Are Asking

        1.     What Does a Decent Deposit Look Like?

The first question that pops into every first home buyer’s mind is “how much will I need to save before I can buy?”

While 20% has always been the standard – and is a great goal because it means less money spent on repayments in the long run - nowadays you can borrow more money with a smaller deposit.

Getting a loan for 100% of the purchase price is out of the question, but you can put down as little as 5% of the total price.

However, be aware that you should not be putting all your money into a deposit - it's wise to have a buffer for things that can and will go wrong. And, the smaller your deposit is, the larger risk you are to lenders, which means you will probably be required to get lender's mortgage insurance.

2.      What is Lender’s Mortgage Insurance?

Lender’s mortgage insurance (LMI) is a type of insurance that protects your lender from losing money if you can’t repay your home loan and they have to sell your house at a loss.

The premium for this insurance is passed on to the borrower as a one off fee built into their mortgage or payable upon signing.

How much this fee will be depends on:

• The amount of money you borrow
• What percentage of your mortgage you put down as a deposit. If you have a deposit of 20% or more, you don’t have to pay LMI
• Your personal circumstances – e.g. was your deposit saved over years or was it made up of a large gift or inheritance?

When deciding whether to save for an extra few years to get that deposit or to take on the cost of LMI it’s important to consider:

• Whether rising house prices in the area you want to purchase in will offset the cost of LMI
• Whether you can get a guarantor on your loan, as this may negate the need for LMI
• Whether you work in a profession that is eligible to have the LMI waived (doctor, lawyer, veterinarian, etc.)

3.      What Legal Fees Will I Need to Pay, and to Whom?

While experienced property investors don’t necessarily need to pay an expert to look over their transactions first home buyers should always hire a conveyancer and a lawyer.

Conveyancers (or conveyancing solicitors) specialise in settlement and title transfers, and are there to:

• Make sure that you meet all of your legal requirements during the transfer of ownership
•  Protect your rights

In addition to a conveyancer, you should also get a lawyer to give your contracts a good once over.

In total, budget for up to $3000 in legal fees, provided your purchase doesn’t have any special requirements or extenuating circumstances.

4.     Stamp Duty: What Is It & Do I Have to Pay It?

They say that only death and taxes are certain in this world, and the realm of property investment is no exception to the rule.

Stamp duty is a state government tax on the transfer of land or property.

Fortunately, if you’re a first home buyer who is planning on occupying the home you purchase, you’ll get some nice tax breaks which could whittle the stamp duty you need to pay down to almost nothing (depending on which state you buy in).

To see how much stamp duty you’re likely to pay on your first home purchase, just use an online stamp duty calculator to see your state’s rules.

5.      What First Home Owner Grants & Incentives Can I Get?

On the 1^st of July 2000, the Australian Government introduced the First Home Owner Grant Scheme.

The purpose of this scheme was to offset the effect that the newly introduced GST had on first-time buyers and to provide more opportunity for them to get on the first rung of the property ladder.

Each state has different offers and requirements. Some put a cap on the total purchase price of a first home, others only provide the grant to those building new homes, and others simply offset the cost of stamp duty.

To find out which incentives apply to your state of purchase, click here.

6.      Do I Need to Pay for A Mortgage Broker?

For many people, finding and applying for their first mortgage will be the most thorough and mentally trying process they’ll ever have to tackle.

Fortunately, you don’t have to approach every single lender to find the best deal. A mortgage broker can help you:

• Work out the size and type of the mortgage you should apply for by asking you a few questions about your circumstances.
• Begin your application by launching a full-scale fact-finding mission. During this stage, you’ll need to provide evidence of your income/expenditure, but by the end of it, you can rest assured knowing you’ll be filling out the paperwork for the product that’s right for you.

And, the best thing is, mortgage brokers charge the banks, not the buyer.

7.      Does Capital Gains Tax Apply to First Time Owner Occupiers?

Capital gains tax is charged on the money you make when you sell an investment asset.

Fortunately for first home buyers who are also owner occupiers, CGT does not apply to houses that you live in.

So, unless you’re planning on making your first purchase an investment property, you won’t have to worry about capital gains tax.

If you are planning on buying an investment property, make sure you’ve done the math and weighed rental yields, capital gains and available grants against tax incursions and upkeep expenses before you sign on the dotted line.

8.      What about Home Insurance? Is it Mandatory?

Australia is a land that is prone to flooding, bush fires, drought and hail, which is why mortgage brokers and banks insist on home buyers also purchasing some form of home and contents insurance.

However, that doesn’t mean you have to settle for the insurer recommended by your mortgage broker or bank.

Shop around for a policy that offers you the best value in terms of cost v coverage. You need insurance that covers your home for a wide range of disasters. Don’t get caught underinsured because you opted for the cheapest policy.