If you are buying your first home, you may have heaps of questions about the best ways to find and finance your home.
At Hunter Galloway, we are mortgage brokers that specialise in helping First Home Buyers with navigating the home loan process. Our goal is to make sure you have the knowledge and support you need, through removing some very common misconceptions around home loans and buying your first home.
In this post we’re going to go through and debunk 5 common first home buyer myths:
- Myth #1: You can’t get a home loan if you have a HELP debt
- Myth #2: You should avoid fixed rates
- Myth #3: You shouldn’t put less than 20% deposit down
- Myth #4: Your pre-approval is fine for any property type
- Myth #5: Your friends and family know best
Myth #1: You can’t get a home loan if you have a HELP debt.
You can still buy a property when you have a Higher Education Contribution Scheme (HECS) or a Higher Education Loan Program (HELP) debt. Sounds too good to be true? It is good and it is true!
The banks look at your HELP loan from an angle of how much you ‘re required to pay each year.
For example, if you earn $55,000 and owe HELP, the bank will factor in $55,000 at 2%, which is equal to $1,100 per year in repayments on your HELP. This will slightly lower your borrowing capacity, but it won ‘t rule you out altogether. You can see more examples of repayments for different income brackets below.
Of course, if you have very little of your HELP debt left, you can just pay it off, then that will then be removed as liability from your ongoing assessment, and your borrowing capacity will increase. You do need to provide proof to the bank that you have paid it off.
The reason why most people think you cannot buy a home with HELP debt is because they choose the wrong lender.
At Hunter Galloway we can help you find a lender suited to your current situation. Get in touch with us online or give us a call on 1300 088 065 to see how we can help.
Read More: First Home Buyer Guide
MistakeMyth #2: You should avoid fixed rates.
Many first home buyers believe variable rates are best for them. From an outsider’s perspective this seems like the logical option – with flexibility and additional repayments on offer. There ‘s also the opportunity to open an offset account to reduce interest costs each week too.
But you should consider a fixed rate if you want to budget over a 1-3 year timeframe. Fixed rates are great, particularly if you’ve got a family event in the future that you want to budget for and you want to know your total expenses. For example, if you ‘ve got a wedding coming up, your expenditure will increase and you want to know exactly what to budget. So, fixed rates give you that absolute stability and control over your finances.
Another option that many first home buyers don ‘t know about is that you can get a split loan. This gives you the security of a fixed rate and the flexibility of a variable rate. The best of both worlds.
Bonus Myth: Offset account
Since we have mentioned the possibility of opening an offset account – this is another myth that needs to be addressed. Offset accounts are not the best option for everyone.
Don ‘t get this wrong, offsets are great. But, remember that when you set up an offset account, the bank charges you annual fees.
There are other ways around the offset account. You can use a redraw facility which allows you to make extra payments and take them back out. Basically redraw does the same thing as offset – with a few differences – but it has no cost.
Remember the main goal is to reduce the interest that you are paying on your mortgage.
Myth #3: You shouldn ‘t put less than 20% deposit down.
Times have changed and the old belief of putting down at least 20% deposit is no longer true.
Of course, the bigger your deposit, the less you ‘ll need to borrow, which means you will avoid Lenders Mortgage Insurance (LMI) .
However, trying to save up that 20% deposit can prevent you from getting your foot into the market. If you do the calculations you may see that paying LMI is better than waiting years and years to save up that 20%.
For example, we had a client who wanted to buy a $500,000 property. They had a $50,000 (10%) deposit and we worked out that their LMI would be under $10,000. Now, if they had to save up to 20% deposit, they would need to save up another $50,000 more and this would take them more than a year to save up this amount. So it was better for the client to use their 10% deposit and pay the LMI.
For our buyers, anywhere between 5-8% of the purchase price is accepted. This is a great way to help get you into the market.
Our statistics show that 81% of our buyers put down less than 20% deposit on their first home. Consider some of our low deposit options starting from as little as 5%.
Another thing to remember is your profession and how this impacts your deposit. For doctors, lawyers, nurses and other certain lines of high income, reliable work, lenders mortgage insurance can be waived.
If you don ‘t have a 20% deposit you can also consider guarantor loans where you don ‘t need any deposit at all.
Read More: How to buy a house (step-by-step process)
Myth #4: Your pre-approval is fine for any property type.
One thing many first home buyers don ‘t realise is that if you have been pre-approved to buy at a particular price, the property type can impact how much the bank will ultimately let you borrow – or even if they will lend to you at all!
Something to keep in mind is that not all banks lend to inner-city postcodes and some have restrictions on unit complexes.
So, if you ‘re looking at buying an apartment in a city or a townhouse, or even a house in certain postcodes, speak to your mortgage broker and confirm if your bank will accept it.
Read More: How reliable is your pre-approval?
Myth #5: Your friends and family know best.
A particular mortgage broker may have worked with your family member but they might be too busy or they might be dealing with more sophisticated people. Maybe your budget is more or less than what your family member had and the mortgage broker they used is not the right fit for you.
While we love referrals, our advice to you is to speak with a few different mortgage brokers before you get started with one. Read reviews, speak to previous clients and look at if the broker has dealt with similar situations to yours in the past.
Consider their personality. You are going to be building a long-term relationship with your mortgage broker, so you want to make sure that they will guide you through the process. Being a first homeowner, you’re going to need a little bit of hand-holding. So you need a patient broker who will coach you through the process, give you tips and hints on the negotiation, property reports – all those things are critically important.
Just remember, go with a broker that will suit your style, not your friend or family.
We hope you found this article about the five myths of home buying to be insightful and informative. If you have any questions, get in touch with us online or give us a call on 1300 088 065 to see how we can help.