Buying Your First Home

One of the defining characteristics of Australian culture is property ownership. In many other countries, being a renter for life is common, but this is not so in Australia. Property ownership is a personal dream and an essential component of preparing for future retirement. Happily, more than 7 of 10 Australian households now live in a home of their own, of which about half are still paying their home mortgage.

If you are not yet a home owner, you probably are in the process of buying your first home. You’ll have to remember that the rise in property values in recent years has made the dream of owning property a little more difficult to achieve. Yet, Australians are still managing to do that and so can you, as a first time home buyer.

How Much To Borrow

It is important to determine the amount that you can borrow. This will enhance your chances of getting approved for the home mortgage application. It is important to realise that a mortgage company will not be comfortable if your resulting home mortgage repayments will be in excess of 25-30% of your pre-tax income.

To illustrate, if your pre-tax income is around $30,000 annually, the mortgage company will likely want your home mortgage repayments not to exceed the amount of $750 a month. If home mortgage interest rates were around 6%, this would suggest a loan maximum amount of about $117,000; however, if interest rates were 10% the loan amount possible for you would be around $82,000. Your loan application should thus be realistic in the amount.

Deposit Requirement

Lenders will not usually cover the full amount of the home purchase, and they expect you to put up a deposit of around 10-15% of the purchase price (although a 5% deposit may be possible). If you don’t have the money right now, you’ll need to save up for it. You will also need money to pay for legal fees, property valuation and documentation, stamp duties, mortgage insurance, lender’s application and settlement fees.

If you are able to make a 15% deposit, as a first time home buyer you can probably look at a home worth around $150,000 more or less. This is a rough estimate. You may want to be more conservative and try to factor in the possibilities of interest rate rises. Some lenders may prefer that you borrow a smaller amount, to give you elbow room in case of rising rates; some others may allow you a bigger amount, which would be tempting although you must not forget the loan repayment will be your concern.

You may want to work out your capability to repay the home mortgage in case interest rates will be 2% or so higher. You can use home mortgage calculators on a mortgage company’s website for a quicker way to do the sums. The bottom line is that you need to submit an application that has good chances of getting approved. Aside from income, other lending criteria will include your employment status, credit history, and also your record of repayments to debts over the past year.

Grant Assistance

In raising money to cover your costs, you can get assistance from the Australian First Home Owners Grant. Under this grant program, a first time home buyer can receive a tax-free grant of $7,000 for either the purchase of an existing house or the building of a new home. You must be a first time home buyer to qualify; if you’re buying the property with someone else, both of you must be first time buyers. In addition, you must be an Australian citizen and you must live in the property for 6 of the first 12 months that you own it. Your application for the grant may be done directly by yourself or through the mortgage company.

Disclaimer:

No investment advice provided to you.
This web site is not designed for the purpose of providing personal financial or investment advice. Information provided does not take into account your particular investment objectives, financial situation or investment needs.

You should assess whether the information on this web site is appropriate to your particular investment objectives, financial situation and investment needs. You should do this before making an investment decision on the basis of the information on this web site. You can either make this assessment yourself or seek the assistance of any adviser.