Mortgage brokers in Baldivis have seen a lot of first home loans lately, due to Baldivis experiencing what is being called a “first home buyer boom” by many. We love helping young couples buy their first homes, and have helped many ourselves. However, many in the business have noticed a trend toward first home buyer mistakes that are costing them a lot of money over the period of a loan.
For most first home buyers, the biggest hurdle is finding enough money to make a down payment on their home. Consequently, many are trying to put as little down as possible, just to get into their first homes. According to a recent industry survey, as many as 33% of first home buyers are obtaining loans for minimum deposits. These can be as low as 3% in some cases.
Using some average industry numbers, it was found that many buyers are costing themselves as much as $89,000 in loan repayments and interest over the life of their home loans. For example, consider a hypothetical situation where two buyers purchase a home for $320,000 with a 30 year loan with interest rates of 5.7%.
One buyer puts down a $40,000 deposit. His payments are $2,089.44 per month, for a total of $752,198.95 by the time he has paid off his loan. The other buyer puts down $80,000. Her payments are $1,857.28 per month, and a total of $668,559.20. The person who puts down $80,000 instead of $40,000 would save a total of $89,935.75 for the total lifetime of the loan.
The problem with smaller deposits is that they bring other costs into play. The rules and numbers are extremely complicated, and it takes an expert to research each situation thoroughly and figure out all of the costs that may be incurred. This will help you make a much better decision on the loan.
It is wise to look into all available options when getting ready to buy your first home. Here are the most commonly recommended techniques for keeping as much of your money as possible.
First Home Grants
To avoid having to pay for extras such as Lenders Mortgage Insurance (LMI), a 20% deposit is required. Every state has some kind of one-time grant for first home buyers at the moment. In WA, it is a one-off grant for $7,000. Whatever the case, knocking $7,000 off of your loan is going to help you save money, even if you don’t reach the 20% threshold.
In SA, there is a $15,000 grant for a new home. In N. T., there is a $12,000 grant for established homes in urban areas, and $25,000 for homes anywhere else. Grants vary from state to state, but any grant money helps lessen the debt burden for a first home buyer.
Find a guarantor
A guarantor is a third party, such as parents, who agree to be responsible for the loan in case of a default. The equity in the guarantor’s home helps cover the loan. This can decrease upfront costs drastically, especially by eliminating LMI.
Watch your credit rating
Interest and fees are in inverse proportion to the borrower’s projected ability to pay off the loan. The less ability you show to pay, the higher the interest and ancillary costs. Lenders will use your current debt and credit rating to forecast how much they can loan you with reasonable expectation of getting their money back.
It is recommended that you have room in your budget for a “buffer” to help defray upfront costs. For example, in NSW, if you are making a deposit of $40,000 on a property that costs $400,000, it will cost you $25,337 in extra, upfront costs to obtain a loan.
Hire a professional mortgage broker
Loan costs will vary from provider to provider. This is where a mortgage broker comes in. A professional mortgage broker will be able to do the research and compare prices to keep your costs as low as possible. All loans are not created equal, and neither are banks. Loan providers all have different algorithms that determine how much you will pay in interest and upfront costs for your loan.
It is essential that you hire a mortgage broker who has your best interests in mind. Failure to do so can cost you thousands of dollars over the life of your loan. When you hire experienced brokers, such as those at Smartline Mortgage Brokers Rockingham, you are tapping in to a wealth of experience.
Experienced, professional brokers know which banks are the best for which situations. Call 08 9527 1800 today to learn about your options.