3 tips First Home Buyers may not have considered!

First Home Buyers have a few options to consider when purchasing their first property, these options can be in addition to the government assistance of reduced purchase stamp duty and the First Home Owners Grant.

Tip # 1 – Lower Interest Rate Products

There are several lenders in the market that offer First Home Buyer friendly products.  Some lenders are offering products with special interest rates and/or reduced fees for First Home Buyers.  This assists in reducing the overall interest charged on the loan.

Tip # 2 – Gift from parents or family

Some parents are very keen to assist their adult children in entering the property market.  A ‘gift’ from parents can be used towards the purchase of the home.  A ‘gift’ can:

* assist in reducing the amount of deposit that needs to be saved

* reduce the loan amount so that mortgage insurance is not required. This can sometimes save thousands of dollars in mortgage insurance costs. Sometimes the mortgage insurance premium can be up to $30,000 (depending on the loan amount). Generally, mortgage insurance is only required when the loan amount is greater than 80% of the property purchase price.

* reduce the monthly loan repayments as the home loan balance is lower

If a First Home Buyer is lucky enough to have parents with the ability to assist in this way it can save thousands of dollars in interest and costs.  It can also mean that a property purchase can be made sooner, rather than waiting a few more years to save the deposit.

Tip # 3 – Family Guarantee Loan

A family guarantee loan allows parents to use some of the equity in their property to help as extra ‘security’ for the First Home Buyer.

The lender will take a mortgage over the First Home Buyer’s property and the parent’s property meaning they will hold more security.

This can help in two ways, firstly the First Home Buyer can buy sooner instead of continuing to save for a greater deposit. Secondly, it removes the cost of mortgage insurance which can be up to $30,000 depending on the size of the loan. Remember, mortgage insurance is payable when the amount borrowed is more than 80% of the purchase price of the new home.

In the past when parents went as guarantor on a home loan they were required to put their whole house up as security. These days lenders will take a guarantee on the parent’s property for a limited amount, this amount is generally 20% of the cost of the new home and the loan is in the name of the First Home Buyer, not the parents. 

How it works:

Sophie and Joshua wish to purchase a property for $850,000. They have savings of $130,000 to put towards a deposit and costs.  The costs including stamp duty and legal fees are approximately $40,000.

This means that Sophie and Joshua would need to borrow $760,000, and the loan amount would be just over 89% of the purchase price.  The mortgage insurance premium for this loan would be approximately $18,000.

Fortunately, Sophie’s parents are willing to use their family home valued at $600,000 as security for a Family Guarantee Loan.  Sophie’s parents will lend Sophie and Joshua the equity in their family home for an amount of $80,000.  This means that even though Sophie and Joshua will still be borrowing $760,000 only $680,000 ($760,000 minus $80,000) will be secured against the property they purchase.  This means they will save $18,000 by not having to pay a mortgage insurance premium.

The total amount of government fees and mortgage insurance premium is for illustrative purposes only and do not take into account the individuals needs and requirements. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.

The parents will need to sign loan papers, provide information, a copy of the title deeds and obtain legal advice. Not all Lenders offer family guarantee loans so it pays to research the market or use a good Finance Broker. Lenders that offer Family Guarantee Loans also have different product features and credit policy which may not be suitable to all situations.

At Wyze Finance we have access to a range of lenders and may be able to assist you to obtain a Family Guarantee loan that meets your financial requirements and circumstances.

Once the loan amount has been repaid to less than 80% of the value of the property purchased, the guarantee can be removed.

If Sophie & Joshua for some reason are unable to make their repayments, the lender will take legal action against Sophie and Joshua before the parents.  If a property is to be sold it will be the home of Sophie and Joshua (in the above example); the proceeds of this property will be used to repay the home loan.  It would only be if there is a shortfall from the sale of Sophie & Joshua’s property that the parents would potentially repay any outstanding debt.  The lender would always try to obtain the outstanding money from the loan applicants before the guarantors.

For more information regarding Family Guarantee Loans contact us at Wyze Finance. We can look at suitable options that may be available to you. 

There are a few other options that can also be considered if you have family prepared to assist in your home purchase.  Contact us at Wyze Finance and we can provide you with more information.

This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.