I have seen a lot of advertising saying if you are a First Home Buyer, you can get into the property market with just $2000 (and the use of your First Home Owners Grant.
I get a lot of questions around how it works or what the pros and cons are. So I Thought I’d have a closer look at it for you so that you can decide yourself whether it’s something that is feasible for you.
First of all let’s have a look on the pros.
The first thing that comes to mind is you’re able to actually get into your first home sooner, rather than waiting while you save the deposit. Now, This can be music to a lot of people’s ears. Getting into you home now while the market is where it is. Particularly if you feel that the market is going to keep increasing as it has done in the last few years. Which means that the goal posts for your deposit will keep moving as well. So getting a property now and starting to pay it off will help you get your foot in the market sooner rather than later.
Another benefit is you actually get a brand-new home. In the way it works, You’re using part of your first home owners grant towards the purchase price. Which means that you need to build a brand new home ,this means that you get a brand new house that no one else has lived in and what first home buyer doesn’t want that?
Now let’s have a look at some of the cons.
One of the first ones that comes to mind is there are few lenders out there that will let you use first home buyers as your deposit without any genuine savings and there’s few lenders out there that will let you add your lenders mortgage insurance on to the loan after settlement. Taking it over 95% of the value of the property. So basically, what all of that jargon means is you gave a very select few lenders. Maybe one or two that you can choose from. It means that if you don’t fit with that one lender the unfortunately you can’t do it.
It also means that when it comes time to negotiate in your rate, you don’t get the choice of looking at all 30-40 different lenders to find the best rate that suits you and your circumstances. Unfortunately, You get given the rate that is whatever bank that is going to offer
Typically you’ll find that they will add a risk fee in to that because it’s a high risk when you’re lending over 95% of what the value of the property is.
Another issue that could arise is when it comes time for valuations. A third party will value the property as if it was already built. They’ll have a look at the plans and the specifications, they’ll have a look at the block of the land and they will put a value on that property, once its built.
If that value comes in short then you’re going to put in some of the extra funds or the deal won’t go through.
Another thing to consider is variations. Variations to a building contract are when you decided that you don’t like the tile range that you’ve been given and you want to perhaps upgrade to a different type of tile. It will a little bit extra and that’s called a variation to the contract. Variations to contracts are something generally you need to pay for out of your own cash. If you’re getting into the market with $2000 and no more. It potentially means that you won’t have any money for variations. Regardless of how much you prefer that better tile or you want to change the color range. You can’t unless you got the cash.
Another thing to consider is what’s included in them. In the actual specifications and the plans. So what I mean by that is, things like fly screens or security screens, curtains, blinds, driveways or landscaping, All these things are all just taken for granted in a property until it comes time to build. You want to have a look and make sure that the property that you’re getting in the contract has all the inclusions that you want and what you’ll usually find is the builder will try to keep the cost as low as possible for you but that might mean that you are not getting some inclusions that you potentially can’t live without.
Finally, another one is lenders mortgage insurance. Basically, it is an insurance product that protects the lender and not yourself. But you pay for i. In the product that you are potentially looking at, its added on to the loan at settlement. What that means is that figure that you’re paying gets added to the loan and you pay that off slowly over 30 years. Potentially, that could end up costing you a lot more.
Look, at the end of the day it’s absolutely not suited to everybody. It’s definitely a niche market. You want to make sure that you read all the ins and outs and certainly the small print to make sure that it is something that suits you.
If you want more information on anything I’ve talked about then make sure you contact me at 360mortgagesolutions.com.au.
Otherwise, If you are a first-home buyer and you’re thinking I really want to get into the market yesterday but you want a little bit of help getting that deposit. Then make sure you register for The First Home Buyers Program so you can learn everything you need to know and avoid some common (and costly) mistakes!