Home and Personal Loan Redraw
Lending specialist, Sharma Haller, shares her tips to help get into your first home sooner.
When I was renting many years ago, I remember feeling like I might never be able to afford my own home – and definitely not the one I really wanted! I was really keen to have my own space...my very own. It might seem odd, but being able to hang pictures on the wall, wherever I liked, change the colour of those walls, and see my children running in my very own backyard, was a big deal for me.
The biggest hurdle I see many people face is getting together a big enough deposit in the first place. Most banks need a genuine savings deposit of at least 10% of the property’s value - so if you are looking at a $400,000 home, you need a deposit of at least $40,000. But even that deposit may not be big enough. If you aren’t able to provide a 20% deposit, many lenders also require you to pay Lenders Mortgage Insurance (insurance for your bank if you can’t pay your loan), which adds to the costs. Plus there are other costs to consider, like stamp duty.
Here are 3 things to consider doing to help overcome the challenge of getting a deposit together, and get you into a house sooner:
Are your parents or other family members keen to help you buy your first home? If you don’t have a deposit saved to secure a home loan with your bank, or if you don’t have enough saved to avoid having to pay Lenders Mortgage Insurance, there are ways they might be able to help!
That doesn’t mean they have to hand over cash. They can help out by becoming guarantors for part of your loan. In effect, they can use the equity they have in their own home (how much their house is worth less any amount they still owe) as security for your loan. These loan structures are often called a ‘Family Guarantee’ or ‘Family Pledge’. For example, Heritage Bank has just launched a Family Guarantee that works by splitting the loan into two parts – one loan for 80% of the property value, which helps you avoid Lenders Mortgage Insurance; and a second, smaller loan secured in part by your parents’ property. The end result is a practical way your family members can give you a helping hand without having to fork out actual cash.
If you’re a first home buyer, you might be able to get a healthy grant from the government. The Federal Government launched the First Home Owner Grant scheme back in 2000, to help offset the introduction of the GST. While it’s a national scheme, the states and territories fund it and administer it themselves in their own area. That means the amount available, and the eligibility criteria, vary from state to state. In Queensland for example, you could be entitled to between $15,000 and $20,000. The Queensland Government recently applied a one-off, 12-month boost of $5,000 to the grant, taking it to $20,000 from 1 July 2016 to 30 June 2017!
If you think you do qualify, it’s really important to check the specific eligibility criteria for your region and what you might be entitled to. Many banks can help you apply for the grant when you are applying for your home loan. Definitely something to look into. For more information check out the Government's First rel="noopener noreferrer" Home Owner Grant website here.
Yes, I know, it’s nothing new under the sun and it’s not going to get you that deposit today. But the bottom line is that the bigger the deposit you can gather, the more you will save on the loan. A bigger deposit cuts down on the amount of interest you will pay, the size of your repayments, and the length of time to pay off the loan. Saving a deposit also proves to your bank that you are a reliable borrower.
So how do you step up your savings? Well, a great way is to have a plan. Don’t leave it to chance or rely on whatever is left at the end of your pay cycle. An option is to set up a direct deposit to put away a set amount, every time you get paid, into a high-interest earning account that you don’t touch. Get used to having to do without that amount – you’re going to have to do that when you have a home loan anyway. And don’t forget to take a close look at where you are spending your money. Are there areas you could reduce your expenditure and continue to live well? For example, could you cook more at home and limit lunch dates? It might mean sacrificing a luxury or two along the way but it can be worth it in the end!
If you are keen to buy your own home, but just need a bit more help financially, it might just be worth looking into these three areas. All the best with your home buying journey!
Sharma Haller is an experienced banking professional with over 11 years working for Heritage Bank. She currently manages two of Heritage Bank’s Toowoomba branches. She loves her team and their passion for helping customers achieve their financial dreams. In her spare time, she enjoys cooking and travelling and of course spending time with her husband and two beautiful children!