FIRST HOME BUYER'S GUIDE - Westpac

FIRST HOMEBUYER’S GUIDEAll the tips you need to get into your first home sooner.

Buying yourfirst home?Let’s do thisBuying your first home is an exciting time,but one that’s also filled with questions.So, we’ve created this guide to give you anoverview of how things work, make things simple –and ultimately get you into your first home sooner.If you have any questions about stepping intothe market for the first time, our Home FinanceManagers are here to lend a hand, with jargon-freeadvice and dedicated support.2

What’sincluded?01PREPARING TO BUY 4Understanding home loans 6Home loan calculators 7Saving for a deposit 8Family Security Guarantee 902Upfront costs 12Know your budget 13Researching the market 14Approval in principle 15READY TO BUY 16Research the property 18Pre-purchase considerations 03320Choosing the right home loan 21BUYING YOUR PROPERTY 22Making an offer 24Finalise your finances 25Ahead of settlement 26Day of settlement 27

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You’ve made the big decision tobuy your first home. What next?Arming yourself with all theright information is the first steptowards securing your first home.We’ve created this guide to helpmake buying your first home easier.Our experienced team of HomeFinance Managers are also here tohelp you along the way. So if you’vegot any more questions, don’t hesitateto reach out to them.5

Preparing to buyReady to buyUnderstandinghome loansBuying your propertyThere are many things to consider in thehome buying journey. A good place tostart is getting up to speed with someof the key terms you’re likely to see.Contract of sale.Stamp duty.This is the legal document thatsets out the terms and conditionsagreed between the buyerand seller.This is a state and territorygovernment tax based on thepurchase price of the property.As it’s paid to the state or territory,the amount will vary depending onwhere you’re located as well as onthe price of the property and otherfactors such as whether you’re afirst home buyer or an investor.Comparison rate.Fixed interest rate.Variable interest rate.This is a tool to help youunderstand the true cost of a loanand is used to compare loans fromdifferent lenders. It’s representedby a single percentage rate whichfactors in some of the fees andcharges relating to the loan, butnot all of them.This refers to an interest rate thatdoes not change for a set periodof time. This type of interest ratemay suit the type of borrowerswho like certainty with theirregular repayments throughoutthe fixed term. You may incurbreak costs if you close a fixedrate home loan before the fixedterm ends, switch to a variable rateor make more than the maximumamount in extra repayments.This refers to an interest rate whichmoves in response to marketinterest rate changes. This meansthe loan repayment could changeduring your loan term. This typeof interest rate may suit the typeof borrowers who prefer flexibilitywith their regular repaymentsthroughout the term.Head to the glossary at westpac.com.au/homeloansglossary for moreterminology around the home buying process.6

Preparing to buyHome loancalculatorsReady to buyBuying your propertyNumbers, numbers, numbers. There’sa lot of them to crunch when you’rebuying your first home. To help you getthe estimates you need, we’ve createda range of handy calculators.How much can Iborrow calculator.Repaymentscalculator.Get an estimate of howmuch you could affordto borrow and what yourrepayments may be.Estimate your monthlyhome loan repaymentsbased on your loanamount.Home savercalculator.Stamp duty andupfront costscalculator.See how long it mighttake you to save for thatall-important deposit.Estimate how muchstamp duty you’ll pay onyour new home and otherupfront costs.Crunch those numbers.Head to tor to explore thesecalculators.7

Preparing to buySaving fora depositReady to buyBuying your propertyIn most cases, you’ll need a depositthat equates to 20% of the propertypurchase price.If you’ve started saving, but still have less than a20% deposit, there’s a number of options availablethat could help you buy a property sooner.Lenders Mortgage Insurance (LMI).If your deposit is less than 20%, you may need topay what’s called Lenders Mortgage Insurance,which enables you to borrow a larger percentageof the purchase price. With Lenders MortgageInsurance, the lender is protected against the risk ofthe borrower defaulting on the loan, which means youmay be able to apply for a home loan with less thana 20% deposit. This can be included in either yourupfront costs or your loan repayments, so that it’sspread out over the term of the loan.Examples of thresholds for LMIMinimum Deposit %Propertypurchaseprice8LMI notrequiredLMI required20%10%5% 600,000 120,000 60,000 30,000 500,000 100,000 50,000 25,000 400,000 80,000 40,000 20,000 300,000 60,000 30,000 15,000

Preparing to buyReady to buyBuying your propertyFamily Security GuaranteeSaving for a home deposit is no meanfeat. But there’s a way to make it moreachievable, with a little help fromthose closest to you.What is a Family Security Guarantee?If you’re finding it tricky to reach a deposit of 20%or higher on your home loan, that’s where a FamilySecurity Guarantee comes in.It allows a family member to act as Guarantorto secure your deposit, so you have a bit moreborrowing power. This can reduce your Loan toValue Ratio (LVR) to under 80%, which means youcan avoid paying Lender’s Mortgage Insurance(LMI) on top of your deposit.That family member can choose cash (like tuckedaway savings or term deposit funds) or equity fromtheir home to use as security, and they won’t needto give any funds directly to the borrower.If the family member chooses to use cash insteadof their home’s equity, this amount will be put ina special Term Deposit account with Westpac,where it could earn interest.9

Preparing to buyReady to buyBuying your propertyFamily Security GuaranteeHere’s an example of how theguarantee works.If you wanted to borrow 270,000(to cover the loan amount, Stamp Duty,and other costs, but not LMI) for aproperty valued at 300,000.Loan AmountProperty Value 270,000 300,000x100 LVRx10090%With an LVR of 90%, LMI is applicable,which is an added cost.However, if you were to add a Family SecurityGuarantee of 40,000 as additional security,the LVR on your loan reduces.Loan Amount(Property Value FamilySecurity Guarantee amount) 270,000( 300,000 40,000)x100 LVRx10079%With a new LVR of 79%, LMI would no longer berequired, which could be a significant saving.10

Preparing to buyReady to buyBenefits forthe borrower.Buying your propertyBenefits forthe Guarantor.More borrowing power.Maximise the amount you can borrow;up to 100% of the purchase price, pluscosts like Stamp Duty and legal fees.More options.As the guarantee is limited, you canchoose the amount you would like tocommit, up to 50% of the loan value.More to save.A guarantee can help you reduce oravoid Lender’s Mortgage Insurance,saving you money when you needit most.More flexibility.You can be released from theguarantee as soon as the LVR dropsbelow 80%. No need to wait until theloan’s fully repaid.More choice.You may be able to enter the marketsooner, with extra flexibility to choosethe property that’s right for you.Know the risks.If you’re thinking about becoming a Guarantor in the Family Security Guarantee, there are a fewthings you should be aware of first: I t’s a big decision to make, so ensure you’re confident with the borrower’s financial situation(and yours) to handle it. Keep in mind, a single guarantee is able to represent no more than 50% of the guarantor’ssecurity. As guarantor, you’ll have to choose an asset you own to use as ‘security’. That’s the propertyWestpac can claim if a borrower defaults on their loan. If you choose to use a Term Deposit assecurity, the whole deposit amount could be used, depending on the portion the borrower cannotrepay. If you choose to use your home’s equity as security and don’t have cash to pay Westpacupfront if asked, your house may be sold to cover it. While acting as Guarantor, your ability to borrow may be reduced. Make sure you read and understand the full Terms and Conditions of the guarantee, and ensureyou seek the mandatory independent legal advice before making a decision and signingany documents.11

Preparing to buyUpfront costsReady to buyBuying your propertyOn top of the deposit, you’ll need toconsider other upfront costs involved inbuying a property, which may include:Government fees,including stamp duty.Conveyancingand legal costs.Building and pestinspections.Title search andregistration fees.Home insurance prior to settlement,and possibly contents insurancewhen you move in.Quick tip.As a first home buyer, you may be eligiblefor the First Home Owner Grant scheme(FHOG). These are government assistanceprograms that offer first home buyers’incentives to access the property market.This can include financial assistance in theform of stamp duty concessions.For the latest state-based information, chatto your Home Finance Manager or go tofirsthome.gov.au12

Preparing to buyKnow yourbudget13Ready to buyBuying your propertyMaking a budget is an important part of thebuying process. Understanding how muchyou can borrow and what your repaymentswould be can help you plan for success.You’ll also need to consider how much moneyyou need for everyday living expenses andother financial commitments. Your HomeFinance Manager can help you to be confidentwith your plans, every step of the way.

Preparing to buyReady to buyResearchingthe marketProximity totown or citycentre.14Public orcommunitytransport options.Buying your propertyIt’s a great idea to research the propertymarket and the areas you’re considering.This initial groundwork can help you narrow yourproperty search and make you a more confidentbuyer. Below are a few factors to consider.Our Home Finance Managers can provide youwith essential information, such as Suburb andProperty Reports, ensuring you have all theright information at your fingertips.Parks andrecreationalgrounds.Schools andshoppingcentres.

Preparing to buyApprovalin PrincipleReady to buyBuying your propertyTo give you a clear indication of how muchyou can borrow, with the help of your HomeFinance Manager you’re able to obtain anApproval in Principle. This allows you to lookfor properties and narrow your search withconfidence as you will: Know the maximum amount you’ll be ableto borrow and what deposit you may need. Be perceived as a serious buyer by a realestate agent.Once an Approval in Principle is given, it is valid for90 days from when it is approved. However, if youdon’t find a property within this time, you may renewthe certificate for a further 90 days by confirmingyour financial circumstances haven’t changed.15

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It’s such a great feeling whenyou finally find the propertyyou want to buy and call home.Before you make an offer or attend theauction, it’s important you carry out allfinal checks on the property you like.Your Home Finance Manager can helpby providing you with a Property Reportfor the home you’re interested in.Property Reports and Guides: While such material is published with permission, Westpac is not responsible for its accuracy or completeness.17

Preparing to buyResearchthe propertyReady to buyBuying your propertyAlways look at the property closely andmake sure it meets your needs.It’s also a good idea to look at comparable propertiesin the area. Understanding what kind of propertiesare in demand and what they’ve sold for can helpyou negotiate the sales process with confidence. Askyour Home Finance Manager about specific propertyreports, which generally include estimated valuationand rental estimates, property history and otherproperty attributes.Property Reports and Guides: While such material is publishedwith permission, Westpac is not responsible for its accuracyor completeness.18