How To Get Your First Home Loan
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How to Get Your First Home Loan
Getting your first home loan can seem like a daunting step, but it doesn’t have to be! Before you apply, it’s important to understand three things:
- where you can get a first home loan,
- your entitlements as a first home buyer, and
- how much you can afford to borrow.
Where you can get your first home loan
You might automatically think of a bank as your only option when applying for your first home loan. However, Keystart home loans are another option worth considering.
Keystart home loans
Keystart home loans are low-deposit home loans provided by the Department of Communities and Housing to eligible first home buyers in Western Australia.
The benefits of a Keystart home loan include:
- a lower deposit.
Keystart home loans require a deposit of just 2% (banks typically require at least a 5% deposit). A lower deposit can help you to buy a home sooner.
If you’re eligible for the $10,000 First Home Owner Grant (FHOG) in Western Australia, you can also use this for your Keystart loan deposit. The FHOG eligibility requirements are explained later in this article.
- no lenders’ mortgage insurance (LMI).
LMI protects lenders if borrowers fail to make their home loan repayments. Banks and other financial institutions typically charge the cost of LMI to borrowers who have a deposit of less than 20% of the value of the home they want to buy. This cost can be several thousand dollars, depending on the size of the loan.
- no monthly account-keeping fees.
Many other lenders charge these types of fees on home loan products.
Keystart loan eligibility
To be eligible for a Keystart home loan, you must:
- be aged over 18,
- be either an Australian citizen or permanent resident,
- not already own a home or land,
- intend to build or buy a home in Western Australia to live in (i.e. not rent out),
- buy a property below a threshold value (the property purchase cap in the Perth metropolitan area is currently $480,000), and
- have an annual income below specific limits. The annual income limits for Keystart home loan applicants have been increased for the second half of 2019. New limits for the Perth metropolitan area are outlined in the table below.
|Type of applicant||Annual Income Limit|
From 1 January 2020, the annual income limits for each type of applicant will reduce
Your entitlements as a first home buyer
It’s also important to take advantage of all your entitlements as a first home buyer when you’re arranging your first home loan. Your potential entitlements in Western Australia include:
- the $10,000 FHOG mentioned earlier in this article.
You’ll be eligible for the FHOG if:
- You’re aged over 18.
- You (or your partner) must be an Australian citizen or a permanent resident.
- You (and your partner) must not have owned Australian residential property before.
- You must intend to live in your new home for at least six months within 12 months of the home loan’s settlement date. In other words, you can’t be buying an investment property to rent out to tenants.
- no (or lower) stamp duty on the purchase price of your property.
If you’re eligible for the FHOG in Western Australia, you’ll also pay no stamp duty on a home that you buy if it’s valued at less than $430,000, and reduced stamp duty if it’s valued between $430,000 and $530,000.
This is a significant saving, because stamp duty is otherwise a major cost when you’re buying a property. For example, if you weren’t a first home buyer and you bought a new home worth $430,000, you’d be charged $14,440 in stamp duty! But you’ll pay ZERO stamp duty on that purchase as a first home buyer.
- the federal government’s new First Home Loan Deposit Scheme (if you’re borrowing from a bank).
This Scheme will be available to eligible first home buyers from 1 January 2020 who wish to borrow from banks. You’ll be eligible for this scheme if:
- You are part of a couple and your combined incomes are lower than $200,000 (or if you’re single and your income is less than $125,000), and
- You can contribute deposit 5% of the value of your new home (FHOG can make up some of this).
- You’re buying a home in Perth that’s valued at less than $400,000 (or less than $300,000 in other areas of Western Australia).
If you meet all of these eligibility criteria, the federal government will provide you with a guaranteed loan to cover the difference between the deposit you can provide, and the 20% deposit that’s required by most lenders (other than Keystart). This government loan will save you having to pay the cost of LMI with these lenders.
How much you can afford to borrow
Finally, it’s important to work out how much you can afford to borrow before you apply for a home loan. Lenders in Australia are legally required to lend responsibly. That means they must determine whether or not you can afford your repayments when you’re applying for a home loan.
You can use The Loan Company’s online calculator to work out how much you can afford to borrow before you apply for a loan. That amount will depend on the level of regular home loan repayments that you can afford, based on your income and other expenses.
How we can help
At Now Living, we can help you to find the right property for your needs as a first home buyer. We have helped more than 1,100 first home owners in WA to finance their property purchase over the last four years through Keystart and The Loan Company, a mortgage broking service. The extensive range of new homes that we build start from just $269,000! They are move-in ready with no hidden costs.