If you were watching channel 7 the other night you may have been pleasantly surprised to see in some cases you can get into your First Home with as little as $2000 of your own savings.
Since the segment aired I have seen an uproar on Social Media, so many Frist Home Buyers wondering what the catch is, if it’s true and what it means for them.
So this week in the blog I thought I would take you through some of the pros and cons so you can see if it is something that might suit you in your circumstances.
The pros
Get into your first home sooner
If you qualify you have the chance to start paying off your home loan sooner rather than later, getting into the property market now can be a good thing if property prices keep going up.
The First Home Owners Grant may change
It was set to go from $20k to $15K in July but the QLD Government extended the $20k grant until December, getting in now could mean an additional $5k from the Government.
You get a brand new home
In order to qualify for the First Home Owners Grant you need to purchase a brand new home or build a new home, and who doesn’t want a brand new home. I remember my first home and it was far from brand new, in fact it was 50 years old. It’s not only nicer to have brand new but you can assume there will be less major issues for a brand new property.
The cons,
You don’t get to choose your lender
In the market place currently there is a select few lenders that will allow the use of the First Home Owners Grant in lieu of genuine savings and an even smaller number that will allow the loan amount to go over 95% of the value of the property (with Lenders Mortgage Insurance added on top)
You get the rate you’re given
When you don’t get to choose your lender you’re not in a position to negotiate interest rates to get the best option for you, in fact you’re in no position to negotiate, and unfortunately the lender can increase the interest rate based on the ‘high risk’ of the application.
You can fall short
When you put an offer on a new build a valuation company will complete an ‘As if complete valuation’, given that your deposit is minimal ($20/$15k grant) you may find if the valuation comes in short you will need to put more cash towards the build for it to go ahead.
The inclusions
When you get your building contract you’ll most likely find a lot of inclusions missing. The builder is trying to keep the cost down for you which is great but you need to make allowances for the things that aren’t in the contract for example curtains or security screens. Little things like this are often taken for granted until it comes time to move into your home and you realise you haven’t got them.
Variations to the contract
No deposit or savings of your own means you’re not able to change much (if anything) in the building plans. You might not like the choice of tiles you have but to change, means a variation to the contract (meaning the price increases at your expense) and if you don’t have savings to cover any variations, you simply can’t do it. This could mean your end product isn’t the home you were after.
Lenders Mortgage Insurance
Borrow anything over 80% of the property value and you will get charged Lenders Mortgage Insurance. This is charged to you and in some cases added to the loan for you to repay over the 30 year loan term. Lenders Mortgage Insurance (or LMI) price varies depending on the loan amount you’re borrowing so the less deposit you have the higher the Loan to Value Ratio (LVR) and the higher the LMI you are charged.
At the end of the day a 20% deposit or family guarantee is your best bet when it comes to purchasing a property however there are other options and certainly the above option may suit some. Make sure you are aware of all the fine print when you are considering a no deposit home loan and weigh up your options.
If you are like so many First home Buyers, trying to get a foot in the property market but struggling to save the deposit make sure you sign up for the First Home Buyers Program set to be released at the end of the month, The first 50 registrations get access completely free.