First Home Buyers
Escape the Rent Squeeze
For many Australians, owning a home is a wonderful dream. The security of home ownership provides wonderful peace of mind and is also a sure foundation in creating wealth for future investing or retirement. In purchasing a home, there are 3 questions that will spring to mind;
- Are you eligible for the First Home Owner Grant and how do you apply for it?
- Do you buy a home on your own or in partnership with someone else such as your spouse, another family member or friend?
- Can you afford the full costs of ownership and how much higher will these be from your current rent?
The current market uncertainty provides an excellent buying opportunity to enter the housing market. Higher interest rates have dampened an already flat market and providing borrowers check their affordability, now may be the best time to consider purchasing a first home.
The First Home Owner Grant (FHOG) scheme was introduced on 1 July 2000 to offset the effect of the GST on home ownership. It is a national scheme funded by the states and territories and administered under their own legislation. Under the scheme, a one-off grant of up to $7000 and stamp duty concessions available for first home owners that satisfy all the eligibility criteria
Each state or territory in Australia has its own eligibility criteria which are subject to ongoing development and change. Current information is available at the First Home Owners portal website.
Many first home owners are not able to enter the market due to their limited
borrowing capacity. For this reason, they often purchase jointly with family
or friends with shared ownership of the home. Joint ownership may assist
in obtaining the home loan but significantly limits future borrowing
where any one of the borrowers wishes to purchase in their own right.
There problems can be avoided by structuring the home loan so the family
can
provide income servicing or cash\equity support without the complications
of shared ownership. These "Family Support" type loans are
available through a handful of lenders and each offer very different terms
and fee structures.
The most common mistake made by borrowers is to think that they can afford the loan if the bank has approved this.
Just because the lender may have approved a loan, does not mean you can afford the total costs of property ownership taking. Many borrowers focus solely on the cost of the loan repayments, not including the associated costs such as rates, insurance, repairs which can add up to an additional 15% to the monthly costs.
It is always prudent to work out what it would mean if interest rates rose by one to two percentage points. Could your budget accommodate it and if not, do you have plan to manage the increased costs? It is important to think longer term, at least for the next couple of years, to account for what you're spending now and any lifestyle and family changes. Accept that things can go wrong and understand the financial impact of these changes.