Taking the first steps into the world of real estate can be exhilarating and incredibly rewarding, but with some much investment required, it will always feel somewhat overwhelming. Making sense of the many financial terms and options for home loans and property investment is a serious educational undertaking for first-time buyers.
Unfortunately, this often dissuades people from pursuing it, potentially leaving them missing out on wonderful opportunities for their future.
At Noel Jones, we are not only committed to assisting our clients in finding the right property for their personal needs and financial goals, but also offer some advice to help you navigate the process. In this article, we will explore some home loan tips around property investing, including how to find the best home loan for a first home buyer, the lowest home loan deposit required, shared equity schemes and more.
What is the Best Home Loan for a First Home Buyer?
If you’re just breaking into the real estate market, chances are you will need some help from the bank to pull together the finances. The type of mortgages for first-time buyers will differ, however, depending on whether you will be an owner-occupier or you are using the property for income-earning purposes.
Owner-Occupied
If you’re buying a property to call home, then the ‘best home loan’ will be an arrangement you can comfortably afford. Depending on the current interest rates and your employment history, this may mean shopping around to lock in a favourable, long-term fixed rate, or starting with a variable rate to benefit from future rate cuts.
You will also be asked to select a loan term to match (20 years, 25 years, 30 years and so on), which will dictate the amount of the principal loan and associated interest required each month. Longer terms may mean less in the outgoings of each periodic payment, but will amount to more interest over the loan’s duration.
You may also be able to apply for a First Home Owner Grant and a host of exemptions, concessions and reductions on aspects like Stamp Duty to make the initial purchase more manageable.
Speak with a real estate consultant to learn more about what you can claim on your dream property.
Investment Property
If you’re buying an investment property to later rent out to tenants, unfortunately, most of the grants and concessions will not be available to you, as it will essentially operate as a business. Depending on your bank or lending institution, your rate could also be slightly higher than on an owner-occupied loan, as these are typically considered ‘riskier’ investments due to their tie to the broader rental market. Lenders will also look more closely at your financial position and how you will cover the extra expenses of ongoing maintenance, agent fees, insurance, and others.
There are, however, some exclusive benefits to investment property ownership, including:
- Rental income cashflow to help with (or cover) your periodic principal and interest payments
- Tax deductions, such as claiming property-related expenses, including interest payments on your loan, to lower your taxable income
- Utilising the equity from capital growth for other investments
What is the Lowest Home Loan Deposit?
It can take a long time for first-home buyers to save up enough for a deposit on a property.
So, what is the lowest home loan deposit available? Typically, banks and lenders require a cash deposit of 20% of the property’s value. For example, to secure a loan on a home worth $500,000, you will need to provide a deposit of $100,000.
Low Deposit Mortgages with Lenders Mortgage Insurance on Loans
When contending with existing rent, groceries, utility bills – a 20% deposit can be a lot of money.
To help, some lenders will agree to offer low-deposit mortgages with amounts higher than 80% of the property’s value. You may be able to offer just 5% and agree to cover any associated purchase costs to secure a loan, but there is a catch. As your lender assumes more risk, you must pay what is known as ‘Lenders Mortgage Insurance’ on the loan. This can either be an upfront cost or added to your loan amount, and it provides additional cover to your lender, should you ever default on the loan.
While this might mean you can enter the market sooner, Lenders Mortgage Insurance does mean you will pay more on your loan in the long run.
Shared Equity Schemes
Another avenue to explore is shared equity schemes, which are a creative solution for first-time buyers without a sufficient deposit. In this arrangement, another party, typically a state or federal-based government, shares the cost of your property.
For example, on a home loan in Victoria, the state government may contribute up to 25% of the property value to help low to middle-income earners. In exchange, they will receive a share in the property.
If eligible, these schemes can provide first-home buyers with:
- Lower borrowing amounts, leading to reduced monthly repayments
- The ability to enter high-demand property markets
- An opportunity to start accumulating home equity early
Work with Our Specialists for More Assistance with Your Home Loan Journey in Victoria
Ready to enter the Victorian property market, but need more guidance in finding the right property and mortgage for you? Speak with an expert from our team at Noel Jones today.
