Let’s face it. It’s not easy for First Home Buyers to save the deposit required to get into their first home.
But with the advice of a good mortgage broker, Michael was able to secure the keys to his $406,950 bachelor pad with a very low deposit of only $7,800.
“If only we could all do that”, I hear you say! Well, perhaps you can. Here are the 4 factors which allowed Michael to do this.
1. Leverage the First Home Buyers Grant
Many governments today are pushing for new housing to be built and are offering special Grants and generous Stamp Duty concessions to encourage this. The most generous of these are available to First Home Buyers in Queensland.
Michael’s mortgage broker was able to help him secure a full exemption from Stamp Duty (saving him $5,495), as well as a Grant of $20,000 to be used toward the purchase of his new home. This boosted Michael’s total deposit up to a tidy $27,800.
Further, with the help of a good property consultant, Michael was able to find a property which was ready for him to move into immediately, but which had not yet been lived in (allowing him to qualify for the Grant).
2. Be Flexible with Your Choice of Lender
Not every lender will treat the same situation in the same way.
Michael’s mortgage broker was able to identify a lender who would consider Michael’s application. Of particular importance was the fact that the lender:
- Did not require 5% Genuine Savings (a requirement to save 5% of the purchase price over time).
- Allows First Home Buyers to capitalise any Lenders Mortgage Insurance (a fee to protect the bank’s security position) up to 98% of the value of the property. Most banks will only allow this to a maximum of 95%, with a few going to 97%.
It’s fortunate that Michael applied through a good mortgage broker. If Michael had simply approached his current bank, his application may have been declined.
3. Negotiate a Low Deposit to Exchange
Normal circumstances require you to pay a deposit of 10% at the time you “exchange” (this is when you sign the Contract of Sale). This would have meant that Michael needing to pay $40,695 – well over the $7,800 deposit he had available!
And although it’s common for the seller to negotiate down to a 5% deposit, this would still have been too high.
However, leveraging the relationships of a good property consultant, Michael was able to negotiate his exchange with absolutely no deposit – zero!
Before committing to a property, it’s also important to do your homework. This will give you confidence that you’re not overpaying and ensure that you understand the history of the property and the area it’s located in.
A great tool for this research is a Property Report.
4. Maximise Your Servicing
Although not related to Michael’s deposit, he was able maximise his borrowing capacity which ensured he could afford to borrow the amount required by:
- Reducing his Credit Card limit – Limits should generally be kept to the lowest they need to be. This is because lenders will consider 3% of the limit in your monthly commitments. For example, a limit of $10,000 would add $300 to your monthly commitments. This could mean the difference between being able to afford your loan or not.
- Eliminating his Consumer Debt – Before applying for a home loan, it’s usually a good idea to pay off any personal loans, car loans, etc. These commitments are taken into consideration and can have a significant impact on the amount that you can afford to borrow.
If you want to find out whether your deposit could get you into your first home, get in touch with us today.