First Home Buyer

Buying or building a home will probably be the most expensive and important purchase you will ever make. It's important to research, plan and have patience to make it a success.

Most people need to borrow money to achieve this dream, not many have all the money they need sitting in a bank account ready to spend!!! This is where obtaining a mortgage or loan comes in.

Before signing a mortgage contract you should:

1. Find out how much you can borrow
2. Calculate what you can afford to spend/repay

Remember to allow in your calculations for costs such as lender fees, legal fees, moving expenses etc.

How much can I borrow?

What will the monthly repayment be?

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First Home Saver Accounts (FHSA)

How they work.

The Government will contribute 17 per cent on the first $5,000 (indexed to CPI) of individual contributions made each year. This means if you contribute $5,000 you will receive a Government contribution of $850.

Contributions

• Contributions may be made by the account holder or another party, such as an employer, on behalf of the account holder. Contributions must be made from after-tax income.
• The Government will make additional contributions which will be paid directly into the account, after the individual has lodged their tax return and the provider the account is with has submitted the relevant information to the ATO.
• No minimum annual deposit is needed to keep the account open. The account can remain open for as long as necessary or until the account holder turns 65, at which time it must be closed.

Tax

• Contributions will not be subject to tax when contributed to an account.
• Investment earnings (or interest) will be taxed at a rate of 15 per cent.
• Withdrawals will be tax free.
• FHSA balances will be exempt from the income and assets test.

Limit

• There will be a limit of $75,000 (indexed to CPI) on the overall account balance.
• If an individual reaches the account balance cap, no further individual contributions will be able to be made. Earnings and any outstanding Government contributions will still be able to be credited to the account after this time.
• Contributions that exceed the limit will be returned to the account holder.

Eligibility & Requirements

• An individual can open an account if they:
• are aged 18 or over and under 65;
• have not previously purchased or built a first home in which to live;
• do not have, or have not previously had, a First Home Saver Account; and
• provide their tax file number to the provider.
• Penalties will apply if a person opens an account where they are not eligible to do so.

• To withdraw their funds, minimum contributions of $1,000 need to be made over the course of at least four separate financial years.
• If an account holder is purchasing a property with another individual(s) who also holds an account, only one account holder needs to meet the four-year requirement. If one person meets this, then the other individual(s) can also withdraw their funds.

Withdrawing

• Individuals will be able to withdraw their account balance tax free to buy or build a first home in which to live. The full amount will need to be withdrawn and the account closed.
• The individual will need to live in the home for at least 6 months within the first 12 months of purchase or completion of construction.
• Individuals can close their account and contribute the full amount to superannuation at any time.
• By transferring the account balance into superannuation, individuals may apply to access the superannuation early release provisions of severe financial hardship, compassionate grounds or terminal illness.
• Penalties will apply to individuals where they fail to meet the withdrawal or occupancy criteria.

Other Circumstances

• Where an individual's circumstances change during the life of the account so that they no longer wish to purchase a first home, they will not be able to access the account but can transfer the balance into superannuation and close the account. Penalties will apply if funds are withdrawn and not used to purchase a first home in which to live.
• If an individual moves overseas, they can continue to make contributions into the account, but will not receive any Government contributions.
• Individuals will be able to access their funds tax free once they reach age 60, consistent with superannuation.

How do you apply?

You will need to complete an application form which will be available from your FHSA provider.  For a current list of providers visit the Australian Prudential Regulator Authority (APRA) website.

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Mortgage Stamp Duty

New South Wales

Owner Occupied

From 1st September 2007, mortgage duty is not chargeable if the loan is for the purpose of owner occupied housing and is for no other purpose(s).         

Investments

From 1st July 2008, mortgage duty is not chargeable if the loan is for the purpose of investment housing and is for no other purpose(s).         

All Mortgage duty will not be chargeable on or after 1st July 2012.

Victoria

Mortgage duty has been abolished from 1st July 2004.

Queensland

Mortgage duty has been abolished from 1st July 2008.

Western Australia

Mortgage duty has been abolished from 1st July 2008.

South Australia

From 1st July 2005, all mortgages taken out for the purposes of securing a loan that has been or is to be applied for home acquisition or improvement will be exempt from stamp duty.

Loans for all other purposes from the above will be charged stamp duty at the below rate:

Mortgages securing an amount	Amount of Duty (from 1/7/2008)
$400 and less	Exempt from duty
Greater than $400 but not more than $6,000	$10
Greater than $6,000	$10 plus $0.15 for every $100 or part of $100 over $6,000

Mortgage duty will not be chargeable on or after 1st July 2009.

Tasmania

Mortgage Duty has been abolished from 1st July 2007.

Australian Capital Territory

The ACT Government does not currently impose stamp duty on mortgages or the discharge of mortgages where customers are transferring loans to another bank. Click here for more information.

Northern Territory

The Northern Territory does not levy stamp duty on mortgages.

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Types of Loans

Basic Variable Loan

Basic loans usually offer variable interest rates where the interest rate charged to the borrower moves according to the market.  Basic loans usually allow borrowers to pay either fortnightly or monthly repayments and are very competitively priced.

Basic loans may not offer features such as the ability to 'split' the loan, however features such as these are rarely used by first home buyers and often increase the cost of the monthly repayment.

Fixed Rate Loan

This is where a loan is locked in at a predetermined rate for a period of time, usually 1- 5 years.  It's a great way to ensure, to the cent, what your repayments will be each and every month for the term that you have agreed to.

Line of Credit (LOC)

LOC's allow borrowers to lend against the equity in their homes.  The amount that you borrow does not need to be taken in one amount on one day.  It is a great feature to have for renovators and investors because it allows you to draw as much or as little; down against the amount you borrow at a time that is suitable for you.

Interest Only

This loan allows borrowers to pay just the interest portion of the loan for a set period of time, usually between 1-5 years.  During the interest only term the principal balance remains unchanged. At the end of the term borrowers can elect a further interest only term or revert to principal and interest loan.

Standard Variable Rate Loan

The standard variable rate loan is the most common loan structure used in Australia.  The interest rate fluctuates depending on the market and the features of the loan are generally broader than a basic loan.
Standard Loans often include features in their products such as offset accounts, the ability to repay large amounts of the loan without incurring additional fees, credit cards/debit cards attached to the account, ability to redraw additional repayments etc.

Low-deposit, 100% & Above Loans and No-deposit

These are loans that require little to no deposit.  A Low-deposit product will generally require 3%-5% of purchase price to be saved as a deposit before funds will be lent. 100% loans usually require the borrower to have enough funds to cover expenses such as stamp duty, legal fees etc and No-deposit loans usually require no deposit.

These types of loans cost more to borrowers than standard loans and are generally only available to borrowers that meet all the other requirements lenders have (such as a good credit history).

Lo-Doc or No-doc Loans

Lo-Doc/No-Doc loans - require less documentation when proving income, credit history and repayment capacity than a standard loan would.

They are often used by borrowers who are self employed, where proving income is not as easy as a person who is employed and receiving regular payslips.

They generally cost more than a standard loan and therefore should only be used where a standard loan facility is not available to the borrower.

Credit Impaired and Non-Conforming Loans

Non-Conforming loans are designed for borrowers who have slight credit impairments, financial difficulties or who are having problems getting a loan through mainstream lenders.

They generally cost more than a standard loan and therefore should only be used where a standard loan facility is not available to the borrower.

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How to Obtain a Loan in 5 Easy Steps

What documentation do you need to apply for a loan and what is the process.

 

 

 

 

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Why use a finance consultant/mortgage broker

Because finance consultants have an understanding of the loan process and the criteria used by Lenders in evaluating borrowers they are able to make sure your loan application is completed quickly, correctly and that you get a loan which is right for you.

• They will work with you to identify your needs
• They have access to an array of loan products with many different lenders
• They will help you to understand the various deals that are on offer, explaining all the features and details
• They will lodge your application for you
• They will deal with the Lender for you
• They will arrange all paperwork necessary to secure the mortgage
• They will be there after your loan has settled and work with you to ensure your loan continues to offer you the outcome you need.

Choosing a finance specialist

Make sure your finance specialist is:

• A member of the Mortgage and Finance Association of Australia (MFAA) www.mfaa.com.au
• Part of a reputable aggregator (the grouping of a number of mortgage brokers into one, for the purpose of doing business)
• Happy to disclose fees and commissions
• Covered by Professional Indemnity insurance
• Has access to a broad panel of financial institutions
• Takes the time to understand your needs and assess your options
• Is part of an External Dispute Resolution Scheme such as Credit Ombudsmen Service Limited (COSL) www.cosl.com.au. COSL is an independent dispute resolution service for the credit industry. They assist borrowers should there be a dispute that is not resolved between the parties.

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Deposits, how much do you need?

Loan To Value Ratio

To find out how much you need for your deposit we need to look at Loan To Value Ratios (LVRs). The Loan To Value Ratio (LVR) is the loan amount divided by the value of the property. Let's say you want to buy a property with a purchase price of $200,000. If you have a deposit of $40,000, your LVR is 80% ($160k/$200k).

The critical LVR figure as far as Lenders are concerned is 80%. If you don't have 20% of the purchase price as a deposit, you will generally be required to pay for Lenders Mortgage Insurance (LMI) which is insurance that protects the lender against default.

Lenders Mortgage Insurance (LMI)

LMI provides protection to the lending institution in the event that you default on your Home Loan. Though LMI protects the Lender, it's paid for by the borrower. It's a one-off charge that gets included in your loan amount. By using LMI on a loan, Lenders can pass on the risk of a borrower defaulting to a Mortgage insurer, so they can offer the same loan amount with less of a deposit.

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