Looking to buy your first home this year?
Obtaining a home loan can depend on many factors, including how much you need to borrow, your repayment capacity and the economic environment. 2020 saw a lot of red tape introduced by lenders in response to COVID-19 job reductions and layoffs, which ultimately meant more hoops for borrowers to jump through and tougher lending criteria to meet. This year we will continue to see banks requiring people to provide extra information about their employment stability, now and in the future, due to the COVID-19 pandemic.
To ensure you land the property of your dreams, here’s our 2021 pandemic survival checklist:
In no particular order, below are the 6 main things you need to have prepared to show when applying for your first home.
1. Credit Report
This provides information on any debts – Do you have any other loans? How about a personal loan or a credit card with an outstanding balance? While some debt may be useful in the right circumstances to help achieve your goals, there’s a risk that too much debt could end up being a drain on your budget and put you into financial stress. Your credit report will rate your risk of not meeting your commitments. Consider whether you can afford to make extra repayments towards your debts to help clear them up sooner.
Keep in mind that a default on your credit report – even if paid – will make it much harder to get credit. Defaults also last 5 years! Further to consider, your credit cards and other loans get reported if any payments are late over the past 2 years so make sure you pay these on time, as that will affect your credit score and lending options.
Most lenders will want to see your bank transactions for the last 30 days, to see that your salary has been getting deposited as it is expected to be, and also to check that your declared living expenses are fairly accurate. So be careful when working out what your actual living expenses are. If your bank statement tells another story, the lenders will be asking questions. Most Australians tend to spend money that is spare each month rather than
showing this as savings. Ultimately, the lenders will count your full spendings as your required living expenses. If you’re preparing to get a home loan, we recommend saving as much as possible and minimising expenses where you can.
You will definitely want to aim for the FHLDS this year if you are unable to provide a 20% deposit. Although there are only a small number of grants available, if you are successful in nabbing one, the grant could save you up to around $15,000 worth of LMI costs. Basically, this is how the government covers your Lenders Mortgage Insurance (LMI) for you. It is a tricky scheme to get with many specific requirements. However, we have been successful in navigating the process and getting many FHLDS positions for our clients
You can read more on FHLDS here:
There are several criteria used to determine your eligibility as a first home buyer under the Scheme. So you should consider whether your personal circumstances satisfy all of the following checks, including:
- an income test (determined from your last tax return)
- a prior property ownership test
- a minimum age test
- A citizenship requirement
- a deposit amount, and
- an owner-occupier requirement.
To find out if you’re eligible, contact us today. There are also several other Grants including the HomeBuilder, First Home Owner Grant and Stamp Duty Concessions that can all assist to make your dream of homeownership become a reality. We can help you sort your way through each of these options.
4. Rental ledger
If you have less than a 15% deposit for your property purchase then many lenders will want to see that you have at least 5% deposit that has been ‘genuinely saved’. This basically means that you’ve held at least 5% of the purchase price in your bank account for at least 3 months OR saved very regularly to get to your 5% deposit.
Now, if you haven’t got this type of savings, some lenders will allow you to provide a six month Rental Ledger (from a Real Estate Agent) in lieu of the 5% genuine savings.
Of course, the Rental Ledger needs to be in good order with payments consistent and no late payments. There is a lender that will also accept a private rental agreement if your payments can be seen clearly in your bank statements.
Do you have enough money in the bank?? Buying your first home can have additional costs involved. These include:
- Stamp Duty
- Legal and Bank Fees
- Government Fees
- Lenders Mortgage Insurance
We’ve broken it down for you so you can get a better understanding of what buying a first home looks like. For first home owners, getting the deposit together is definitely the biggest challenge. If you have 20% of the purchase price of the property you wish to buy, then you are seriously laughing. Banks are a lot easier on people with 20% deposits and your home loan product options really open up for you.
But most first home owners don’t have 20% deposit. If you have a family guarantor, also laughing…. As you don’t need a deposit AT ALL! But again, most people are not that lucky. The ‘guarantor’ can even cover purchase costs. If you’re unsure, make sure you contact us to find out if a family guarantor is an option for you.
If that’s not an option and you’re having to come up with a deposit yourself, the bare minimum that you will need is 5% of the purchase price. More is always better, but 5% will get your foot in the door. So this is what a 5% deposit looks like for the following property prices:
$500,000 price = $25,000 deposit
$400,000 price = $20,000 deposit
$300,000 price = $15,000 deposit
The figures above are assuming you are going to live in your new property, what the banks call ‘owner occupied’. If you are looking to buy your first home as an investment, then you will need a minimum deposit of 10% of the purchase price plus the LMI which is normally a further 2%. To find how much you’ll need, read more here.
6. Documents, documents and more documents…
Depending on your unique situation you will need to provide a variety of documents. We will be able to let you know what these are specifically and we usually only ask you for a few documents at the beginning of the process – ID, income and any liabilities. Once we’ve got some idea of which lenders are going to be your most competitive options, we will then ask for a final round of documents that will meet the lenders’ specific requirements. The best way you can speed up the process is by getting any documents we ask for back to us asap!
Unfortunately, due to COVID-19 there has also been an increase in the documentation that lenders require, so be prepared for that. It is almost without fail that the assessor may ask for further documents. We do try to make it as pain free as we possibly can as we understand it can be stressful to obtain everything that is required. Of course, we will help you with any First Home Owner’s Grant forms etc.
Different lenders may require different documents. However, most banks typically require some or all of the following:
- Proof of identification – such as a driver’s licence, passport, medicare card, birth certificate and/or marriage certificate.
- Proof of employment –recent payslips, income statement and/or supplying bank statements of the account that your wage is paid into, and/or a letter from your employer (especially if you are a casual employee, have an irregular income or are paid for piecework).
- Tax returns and Notices of Assessment (particularly if you are self-employed).
- Extra income and assets – bank statements, share earnings reports, superannuation and/or proof of extra income like Family Tax etc.
- Assets – includes cars and shares.
- Expenses – household bills, what you pay in rent, transactions account and credit card statements.
- Debts – credit cards, zippay or afterpay accounts, personal loans, and car loans, HECS
Would you like to buy your first home?
Let us help you cultivate your dream of becoming a First Home Owner. Find out more about our Free First Home Owner Session: ‘Keys to Get in The Door!’. We’d love to help you get your first property!