Are you a first time home buyer? If yes, then remember this…Bigger deposit, better position!
While some lenders can offer low-deposit loans of under 10% of the purchase price, saving around 20% can offer serious benefits:
Benefits of 20% Deposit Loans for First Time Home Buyers
- Access to a wider pool of lenders and products
- They need to borrow less money overall
- It’s a clear sign to potential lenders that they’re good at managing money.
If a client saved less than 20%, there are lenders who can help. Take note thought that deposits of that size may require Lenders Mortgage Insurance (LMI). This adds more fees and another layer of assessment of suitability. It is because LMI providers are separate businesses and often have quite strict rules.
Lenders use it to assess a person’s eligibility for a loan. Some non-bank lenders will review their financial circumstances as a whole, so their credit rating is not always the defining factor when they apply for a loan. But it does matter. Credit scores are closely linked to home loan applications so understanding what makes up and affects their credit rating is important for any home buyer.
Advise your client to get hold of a copy of their personal credit file and review credit rating – including any defaults listed against their file. Mistakes on their report are not uncommon – if they pick up on them they can get altered and save headaches later on.
You can easily get a free credit score online. You can Google it or check the Australian Government’s Money Smart Website for quick links.
Lender Protection Fees
They probably have some idea where they want to buy and how much they want to pay. Now it’s time to work out how much they can reasonably borrow. They’ll need to take various home loan fees into account, like stamp duty, legal fees or Lender Protection Fees (LPF). They should also think about their current situation, their income and expenses, any dependents (kids or parents), and any lifestyle changes they can see coming up – like a job change or starting a family. They need to think about what’s likely to happen in the near future – as well as now.
If the home loan doesn’t fit, first time home buyer shouldn’t sign up for it!
There are more things to consider with a home loan than just the interest rate. There are redraw and offset facilities, refinance costs, repayment flexibility, fixed or variable interest rates, loan terms and fees.
Make sure your clients research the loan options available and examine them all.
Research, research, research
Did we mention research? Often the difference between a diamond in the rough and a dodgy deal is simply the buyer’s level of market knowledge. So the more your clients know about the property market and where they want to buy, the better. They should look at average prices over the last decade, proximity to shops, schools and transport, rental returns etc. They want to be sure the area has what they need in terms of both lifestyle and growth opportunity.
Speaking of growth opportunity, advise them that sometimes the best locations for property growth are not the ‘hot’ suburbs but the suburbs next door. These often provide a cheaper entry point and greater potential for development.
Likewise, a brand new or newly renovated property will generally charge a premium for the look. An existing, lived-in home may not look as pretty, but it can be much better value and let’s them add their own personality to it. You should also study every investment home loans rates.
If they don’t have the finance, don’t make a bid. This is a top tip for a first time home buyer.
There’s no cooling-off period at auctions, once they’ve made an accepted bid that’s it. Buyers without finance approval can find themselves in serious strife if they sign a sale contract.
To be on the safe side, they should hold a letter of finance approval from the lender. That way they can negotiate their purchase price without worry.
If you have a client that’s ready to enter the market, help them out with these tips during their search. They could help them find the dream home they’ve been looking for.
Help for a First Time Home Buyer
If you’d like more information, talk to us today. About loans more generally or about how we may be able to put your clients in touch with a lender that can help if the major banks say ‘no’ to their first home loan application.
Disclaimer: Original content source: Pepper Money. It is designed for publication through Accredited Brokers, to provide you with factual information only, and it is not intended to imply any recommendation about any financial product(s) or to constitute tax advice. If you need financial or tax advice you should consult a licensed financial or tax adviser. The information in the article is believed to be reliable at the time of distribution, but neither Pepper nor its accredited brokers warrant its completeness or accuracy. For information about whether a non-bank loan may be suitable for you, call us on 1300722494.