Yes, it can seem daunting. But starting the process towards securing finance for your first home is not difficult – you just need to have a solid plan and all the information at hand. Here are some of the key things you need to know to get on top of it.
Saving for the deposit
First up, you’ll need to have enough money saved up to cover the deposit. In most instances, this will be a minimum of around 5% of the total value of the property. So if you’ve found an apartment you like for $400,000 you’ll require a deposit of $20,000.
Bear in mind, though, that depositing anything less than 20% of the full value of the property will result in you having to also pay Lenders Mortgage Insurance (LMI – more on this later).
There are plenty of blogs, podcasts and apps out there that give all manner of tips for putting together an effective savings plan. But we all know, the easiest way to save money is not to spend it.
Using a guarantor
Banks and lenders have tightened their regulations in the past year, so you may find you need the help of a guarantor to meet the loan requirements.
It’s basically a promise that if you default on your loan, your guarantor will be legally liable to cover it. And one commonly chosen option is to nominate your parents as your guarantors.
Here’s how it works. If your parents have their own home, they can use the equity in it to act as security against your loan. This can potentially enable you to reduce your loan-to-value ratio so that it falls below the magic 80% — and therefore removes the requirement for you to pay LMI. This can make it easier for you to save up your deposit in a shorter time.
Calculating the full cost
The asking price of an apartment is only the beginning of your financial journey – there are a number of other costs to consider when working out your budget.
The beauty of buying off the plan is that you avoid having to pay Stamp Duty. This can save you tens of thousands of dollars depending on the value of the property and which state you live in.
To purchase any property you’ll need the services of a solicitor or conveyancer to conduct the legal side of the transaction – this is not something you can do yourself. A best-case scenario, everything-runs-smoothly purchase process could cost you around $1,000-$1,500 in conveyancing fees. Make sure you factor this into your savings plan and budget ready for when you need it.