Purchasing your first home (or any for that matter) requires planning and knowledge. That’s no secret. From finding the right area for you, to settling a loan. In this article, we’ll discuss how you can maximise the opportunities and resources you might have at hand to increase yours or family’s likelihood and speed in securing a property. We will touch on the following: how family contributions can help, participating in government initiatives if you are eligible, co-ownership, learning useful terminology to approach your broker with greater clarity, and keeping up with industry news.
1. Family contributions
You might have heard that the largest generational wealth transfer in Australia is happening. Part of this includes older family members financially contributing to the next generation’s home buying.
Commonly, parents give their houses to their children, or use savings to help them make a downpayment. However, there are other contribution options that are not as immediately obvious.
Firstly, family members can take out a line of credit to cover downpayments. This involves borrowing against one’s property’s equity (most lenders expect this equity to be quite substantial). Once borrowing is approved, funds can be accessed up to a set limit (for example 70% of the equity), and interest is paid only on the amount actually used as opposed to the entire limit. Usually, interest repayments are monthly, whereas the principal can be more flexibly repaid. Through this method, a relative might be able to fully fund a downpayment for the next generation.
For older Australians (age 60+), reverse mortgages can be another option to help with downpayments. Like the previous method, this involves borrowing against property equity. However, instead of regular, monthly repayments, the loan is repaid in certain situations, including when the owner passes away (any equity left behind goes to heirs), the home is sold, or the owner moves into aged care.
Finally, acting as a guarantor can be an effective family contribution. Being a guarantor means agreeing to use one’s property’s equity as an extra security for someone else’s home loan. This can enable a later generation to buy a house without a deposit and help them avoid Lenders Mortgage Insurance (which is usually necessary if the deposit is less than 20%). While this can speed up the process of family securing a home faster and with greater ease, if they cannot make their repayments, the guarantor is responsible for covering those up to the amount agreed to. This doesn’t have to be the entire loan, but rather just the amount guaranteed.
While these methods have their benefits, they also come with risks, so make sure to familiarise yourself with those if you are considering any. You may want to do some further research or reach out to us to see how we can help.
2. Familiarise yourself with government schemes
Theses schemes/initiatives can be targeted at first time home buyers, single parents, or anyone else that falls under specific circumstances. Here are a few to consider:
First home guarantee:
The first home guarantee can allow you as a first-time home buyer to purchase your property with a low deposit, as little as 5% and no obligation to pay Lenders Mortgage Insurance (LMI). Not all first-time home buyers are eligible for the first home guarantee, and places are capped at 35,000 per year.
Family home guarantee:
This is available to single parents/guardians with one or more dependent children, and is not restricted to first-time home buyers. If you are eligible, you can purchase a home with a mere 2% deposit, without paying LMI, since the government can guarantee up to an 18% deposit.
Regional first home buyer guarantee:
Similar to the first home guarantee, but supports eligible regional-area buyers.
Looking into government initiatives can really help people (such as single parents) secure housing faster and with greater ease. This can offer hope and relief for anyone struggling or wanting to progress faster in their home buying journey. However, places in these initiatives are limited and there are price caps on the properties for purchase. Feel free to reach out for assistance in determining your eligibility for government assistance.
3. Co-ownership
Joint ownership can make the process of buying a home faster and more enjoyable (if it’s right for you). There is the obvious benefit of greater affordability and an easier entry into the property market.
There are different ways of going about co-ownership. Firstly, the owners might share the property equally, so that if one of them passes away, the deceased owner’s share is split equally among the remaining owners.
However, there is also the method of owners holding unequal shares, where each owner’s share can be independently inherited, sold or transferred. An agreement can outline the conditions for how parties may handle their shares, disputes and other issues.
While there are some great upsides, co-ownership does come with risks such as having to be responsible for paying off more of the mortgage if one party refuses to do their part.
4. Get to know some relevant terminology
The internet is a fantastic place to learn anything, including mortgage-related terminology.
Learning terminology can help you understand processes and gather your questions, helping your broker understand your goals and challenges, which could lead to greater and faster results.
Here are a few essential ones:
Loan to value ratio: The loan amount compared to the property’s value
Stamp duty: A tax on property transactions (one-time) imposed by your state or territory government
Appraised value: An estimate of the property’s value, determined by factors such as location, property features and what similar, comparable properties have recently sold for (unlike market value, which is usually higher and heavily relies on what buyers would pay for the property)
Serviceability: A measure of how easily a borrower can cover their loan repayments, considering factors like income and expenses
Equity: Your home’s value minus mortgage balance (e.g. a $500,000 value house with a mortgage balance of $200,000, equity is $300,000).
Learning some terminology can help you approach broker consultations prepared with questions and receive shorter, sharper answers. However, a good broker will be able to answer anything you want to ask, no matter your knowledge level. Here at Next Step Broking, we simplify everything for our clients and enjoy guiding clients who might not even have a clue about what they are doing.
5. Keeping up with industry news
Knowing what’s changing in the property industry can encourage you to come prepared for any relevant consultations. Perhaps you’d like to get further clarity on industry issues, or find out how you can benefit from industry changes. Whether that is rate cuts, government initiatives, circumstantial policies that might affect you or construction/town plans in particular suburbs.
For example, a recent ban on foreign established-home buyers is in place, which could affect your decision to buy in suburbs that are usually foreign-buyer dominated due to potential demand and pricing changes.
As always, we hope you have learned something and thank you for tuning in.
If you would like to purchase a property either sooner or with greater ease, maximising your opportunities and resources can lead you the way there. Finally, speaking with broker can tie everything together and open your eyes to resources you may not even know you have. For any questions, do not hesitate to contact us.
Warm regards,
Next Step Mortgage Broking
