FocusOn - Buying your first home

For many people, buying a home is the largest purchase they will make.  There are many different issues that you need to consider.  Careful planning will ensure that you get into your first home sooner.

Set a realistic budget

When deciding how much you should spend on a home, it’s important to draw up a detailed budget showing your household income and expenses.  This will show you how much you can afford to spend on mortgage repayments each month.

It is important that your budget factors in any additional expenditure that you will incur once you own your home.  There will be many expenses that you will need to pay as a home owner that you are not paying as a renter – for example, building insurance, maintenance and council rates.  If you are currently boarding or living at home you will also need to allow for occupancy costs – electricity, gas, telephone, water, etc.

You should ensure that your budget also allows room for saving for unexpected expenditure such as large medical bills.  You also need to consider the possibility of future changes – for example, does your budget allow for an increase in interest rates which would lead to higher mortgage repayments, and can you still afford the repayments if one of you ceases work for any reason.

Be aware of hidden costs

Once you have set your budget and worked out the level of mortgage you are comfortable with, you then need to consider hidden costs.

The actual purchase price of the house is not the only cost.  You also need to calculate stamp duty, title transfer fees, legal fees, loan establishment costs – all of these will form part of the total amount you need for your home.

Save a deposit

In order to buy a home your first need to save a deposit.  Your lending institution will want to see proof of savings before approving a loan.

How much you need to save depends on the price of the house.  In most cases if you are borrowing more than 80% of what the lender considers to be the value of the property you will be required to pay mortgage insurance to cover the lender in the event that you default on your loan.  This can add thousands to the cost of your home.  Even though you will be required to pay the insurance premium, mortgage insurance is purely for the lender’s benefit and offers the borrower no protection at all.

The Federal Government’s First Home Saver Account can be a very useful tool.  The benefits of these accounts include:

	Interest capped at 15% tax
	Government contributions (bonuses) of an extra 17% on the first $5,000 contributed each year
	Withdrawals from the account used to purchase or build a first home are tax free
	In recent announcements, if a home is purchased within 4 years of the account opening the savings can be transferred into an approved mortgage at the end of the     4 year period.  Previously these savings would have been required to be transferred into your superannuation account and locked up until retirement.

For more information, please refer to FocusOn First Home Saver Accounts.

Government grants

The First Home Owner Grant scheme was introduced on 1 July 2000 and provides eligible first home owners with a $7,000 grant.

In Victoria the following conditions apply:

	Available to individuals (not companies or trusts) over 18 years of age who are Australian citizens or permanent residents
	For transactions commencing after 1 January 2010, the purchase price must not exceed $750,000
	At least one applicant must reside in the home as their principal place of residence for a continuous period of at least 6 months of the first 12 months of ownership
	Applicants and their spouse must not have owned or had an interest in a property previously

In addition to the grant, you may also be eligible for the First Home Bonus if you are purchasing or building a new home (not an established home) with a purchase price not exceeding $600,000.  The bonus for contracts entered into in the 2010/11 year is $13,000.  There is an additional $6,500 bonus if you home is in a regional area.  The bonus for established homes ceased on 30 June 2010.

Published : June 2010