5 first home buyer myths debunked

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If you’re looking at buying your first home, you probably have heaps of questions about how to work out the best way to find and finance your new place.

If in doubt consult with expert mortgage brokers who specialise in helping first home buyers navigate the home loan minefield. They will ensure you have all the knowledge and support you need throughout the loan application and home buying processes.

In the meantime, we’re going to go through and debunk five common first home buyer myths you may encounter when purchasing your first home.

Myth #1: You shouldn’t put less than 20 per cent deposit down.

While it is true that the bigger your deposit, the less you’ll need to borrow (which also means you will have lower repayments and possibly better interest rates), it is also true that you don’t need 20 per cent deposit. The benefit of putting down a 20 deposit is that you will avoid lenders mortgage insurance (unless you’re a doctor, accountant or engineer in which case LMI is waived). Yet putting down this much deposit isn’t always possible for everyone.

With lots of our home buyers, we find you can put as little as five to eight per cent of the purchase price down, allowing you to get started in the property market and build equity sooner. In fact, 81 per cent of our buyers put down less than 20 per cent deposit on their first home purchase. Most broker’s offer low deposit options starting from as little as five per cent (or guarantor loans where you don’t need any deposit at all).

Myth #2: You can’t get a home loan if you have a HELP debt.

Are you finding it hard to save up for a deposit because you’ve been concentrating on paying off a HELP (or HECS) debt? Fear not, you can still buy a home even with a HELP debt. Yet the other thing to keep in mind is how the banks will look at your HELP loan.

They won’t necessarily look at how much the total loan is, but how much you’re required to pay from each pay cheque. The banks use the ATO’s repayment thresholds to calculate your repayment rate, which is determined by your current income. So if you earn $55,000 and owe HELP, the bank will factor in $55,000 at 4 per cent equalling $2,200 per year in repayments which will slightly lower your borrowing capacity, but it won’t rule you out altogether! You can see more examples for different income brackets below.

2018-19 repayment income thresholds and rates for HELP, SSL, ABSTUDY SSL and TSL Source: ATO

Myth #3: You should avoid fixed rates.

Many home buyers believe variable rates are best for them, as they provide flexibility in being able to make additional repayments and use an offset account to reduce interest costs each week. But if you’re looking for stability in your repayments and looking to create a fixed budget over a one to three year period, a fixed rate could be a great option.

You can even go for the best of both worlds and look at a split loan, where you have part variable, and part fixed giving you both stability on the fixed portion, and flexibility to make extra repayments on the variable portion.

Myth #4: Your pre-approval is fine for any property type.

Even if you have been pre-approved to buy at a particular price, the specific property you find can impact how much the bank will ultimately let you borrow – or even if they will lend to you at all!

For example, not all banks lend in inner-city postcodes and others have restrictions on different unit complexes which you won’t know until the bank declines your loan application. It’s important to talk to your mortgage broker about the type of property you’re looking at buying to confirm if your bank will find this security as acceptable. Check out this article which breaks down all the ways you can confirm if your pre-approval is reliable.

16/48 Glen Road, Toowong, QLD

Myth #5: Your friends or family know the best mortgage broker.

In any housing market, working with an experienced mortgage broker is key. We suggest talking to a few mortgage brokers before making a final decision. Read online reviews, ask to talk to past clients and more importantly check if the mortgage broker has recently helped home buyers who had a similar situation to yours in terms of both price range and type of property.

You’ll also want to check for a personality fit. Do you want someone who is patient and will guide you through the process? Or do you want someone who works fast and gets straight to the point? Go with a mortgage broker that will suit your style.

All the best with your search for a mortgage broker and first home!

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Jayden Vecchio
Jayden Vecchio
Jayden Vecchio is a Director at Hunter Galloway. He was awarded 2017 FBAA National Broker of the Year, and assists home buyers with arranging finance, and getting ahead in this competitive market.

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