First home buyers can now purchase a property with as little as 5% deposit without copping lenders’ mortgage insurance, after the government’s expanded First Home Guarantee Scheme came into effect on 1 October. It’s expected that 70,000 first home buyers will make the most of the scheme in its first year of expanded access.
If you’re looking to purchase your first home, there are a few common mistakes to be aware of before you dive in.
But first, let’s take a look at the expanded scheme and what it means for buyers.
Unpacking the Australian Government 5% Deposit Scheme
The scheme, formerly known as the Home Guarantee Scheme and now branded the Australian Government 5% Deposit Scheme, aims to help more Australians to buy their first home sooner.
Eligible first-time buyers on all income levels can purchase a home with a 5% deposit, without having to pay costly lenders’ mortgage insurance (LMI). The government acts as a guarantor for 15% of the home loan.
Price caps on eligible properties have lifted, and there is now no limit on the number of people who can apply. First home buyers in Sydney, for example, could purchase a $1.5 million home with a $75,000 deposit. A $950,000 home in Melbourne would require a $47,500 deposit.
As a first-home buyer, it’s an exciting time to be entering the market. Here are some common mistakes to be aware of.
Potential pitfalls with first-home purchases
1. Underestimating your purchasing costs
Saving your deposit is only one piece of the puzzle. You also have to consider the other upfront costs of buying a home, which may include:
- Stamp/transfer duty
- Transfer fees
- Building and pest inspections
- Legal or conveyancing fees
- Loan establishment fees
- Moving costs.
There are also ongoing costs to factor into your budget, such as council rates, water and utility costs, body corporate fees (for example, for apartments), maintenance and insurance. All of these need to be included in your budget.
2. Being led by emotion, not reason
It’s easy to fall in love with a property’s aesthetics and potentially blow your budget or overlook its flaws.
Take a critical approach when inspecting properties and make sure the property you settle on ticks your key boxes.
Remember that there will always be another property that you could call home, even if this one falls through.
3. Not getting pre-approval on your finance
Pre-approval is an indication of how much a lender is likely to lend you, based on an initial assessment of your income, expenses, assets and liabilities.
Getting pre-approval gives you a clear understanding of your spending limit, narrows down your property search and strengthens your ability to negotiate with sellers. You’ll be in a better position to make an offer or bid at auction with confidence, knowing your finances are in order and ready to go.
Pre-approval for a home loan usually lasts for 90 days.
4. Skipping the building and pest inspection
You may be tempted to skip a building and pest inspection to save money, but that could ultimately cost you thousands in the long run.
You’ll want to ensure the property is free of structural problems and unwanted pests like termites, or other issues like asbestos or rising damp, before purchasing.
Arrange the building and pest inspection before you sign the contract of sale to avoid unwelcome surprises.
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