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Once you’ve saved up a deposit for a home, it’s tempting to go straight to looking at properties and house and land packages to find your dream first home! But before you do, you need to ensure you have approval in place for a mortgage. Without a mortgage, it’s unlikely you’ll be able to jump straight in to owning a home. We spoke to our friends at The Australian Lending & Investment Centre (ALIC) who gave us a summary on what a mortgage is, and how you go about obtaining one so you can become a home owner.
A mortgage is a legal agreement where a bank or financial institution lends money to an individual at interest so they can purchase a residential dwelling. The condition of the loan is that the individual’s title on the property becomes void if repayments are not made on the debt at regular intervals as set by the financial institution.
Working with a mortgage broker to gain mortgage pre-approval is the next step once you’ve saved up a home deposit and you’re ready to look for a property to purchase. Pre-approval is a valuable qualification for buyers , as it’s a guarantee from the lender that you’ve been approved for a specific loan amount for a set period of time. Your mortgage broker will request information from you such your salary amount, and documentation about any existing loans and assets you may already have. They’ll use this information to calculate how much money the bank will allow you to borrow. Part of their job is also to provide advice on what is realistic for borrowers and their lifestyle, particularly when it comes to working out what your monthly mortgage repayment will be.
Mortgage brokers are accredited with a number of different lenders, which enables them to compare interest rates and provide the best home loan option for buyers. Once you’ve found your dream home and you’ve made an offer of purchase that’s been accepted, brokers do the hard work for you by following the loan application from start to finish. They act on your behalf during the application process to ensure things move forward efficiently and know who to speak to if any issues arise. They also have a sound knowledge of penalties and hidden fees, and thanks to the Australian Securities and Investments Commission regulations, provide peace of mind for borrowers that they will not receive a loan they cannot afford.
Once you’re ready to finalise your mortgage, your broker will research and recommend the best home loan for you. There are a number of different options available in the market, including basic loans and package loans. Just as the name suggests, basic loans just include a ‘no frills’ loan from the lender. Package loans involve combining your home loan and other commonly-used financial products into one bundle. It can allow you to gain benefits such as access to fee waivers, offset accounts, a credit card with the annual fee waived, or discounts on insurance.
When working with your broker, it’s important to consider a number of things, including:
Your answers to these questions will determine whether your mortgage broker sets you up with a package loan or a basic loan.
Whether you’re a first home owner ready to purchase property for the first time, or an existing home owner ready for the next stage of life, your mortgage is what allows you to make changes to your property portfolio. Working with a mortgage broker to determine what you can afford to borrow is the first step towards making your purchase.
Hotondo Homes is not an authorised financial institution and we recommend home buyers always seek the advice of a registered financial professional before purchasing a home.
When you’ve found the perfect home to purchase, or the perfect block of land to build on and it’s time to organise a home loan, your mortgage broker will start talking to you about interest rates and which home loan gives you the best rate. If you’ve never held a mortgage before, it might initially feel confusing to be talking about rates and percentages, so we’ve got a quick break down of interest rates, what they are, and how they impact your mortgage over time.
The Reserve Bank of Australia (RBA) is Australia’s central bank, and it conducts the nation’s monetary policy and issues its currency. It also sets something called the ‘cash’ interest rate, which is reviewed each month. The cash rate is the overnight money market interest rate. At the monthly review, the RBA will decide to either increase, decrease or put interest rates on hold, which in turn affects how much your mortgage repayments will be.
Credit providers are financial institutions that provide credit to individuals and businesses. Often people know these providers as the major banks, but there are credit unions who also offer competitive interest rates. Credit providers have the ability to set their own interest rates, and can increase or decrease their rates in line with the RBA’s cash rate changes. It’s worth noting that while the RBA cash rate may remain unchanged, credit providers can adjust their rate when they deem it appropriate to do so.
A variable rate means your rate will fluctuate in response to the cash rate and other changes that have been made by your credit provider. The advantage to having a mortgage with a variable rate is that the rate will often (but not always) decrease if the RBA’s cash rate decreases, which will then reduce the amount of interest you pay. Another benefit to having a variable rate is that you can make additional payments to your home loan, meaning the loan can be paid off sooner. However, remember that a variable interest rate will also increase if the cash rate increases (and can also increase even if the cash rate does not). It’s an interest rate that will change frequently throughout the life of the loan, so you should ensure your finances allow for these changes, particularly the increases.
Having a fixed rate for your mortgage means you can lock in an interest rate, often for one to five years of your home loan. This means that while the rate is locked in, your repayments won’t change during that time. You’ll be able to plan your finances accordingly because you’ll know exactly how much your repayments will be. This is beneficial during times of national or worldwide financial uncertainty or crisis, when cash rates may increase significantly; your rate will be safeguarded against these changes. On the flip side though, a fixed rate means your repayments won’t decrease if interest rates go down, so you may find yourself locked in to a fixed rate that’s much higher than the cash and variable rate. There may also be restrictions on making additional loan repayments if you have a fixed rate, and your credit provider may impose a fee for ending the fixed rate period.
This type of interest rate offers the best of both worlds. You can pay a fixed rate on part of your loan, and a variable rate on the rest. This allows you to take advantage of interest rate drops on the variable part of your mortgage, and the fixed rate partially protects you from interest rate increases. Often you can still make additional repayments to your loan, helping you pay it off faster.
If you’re ready to build or purchase a home this year, doing a little research to properly understand interest rates and how they will affect you as a property owner will help you have a clearer idea of how to plan your finances accordingly. For more information about building your own home, visit the Hotondo Homes website today.
Hotondo Homes is not a registered financial advisory and we recommend you speak to your financial advisor or mortgage broker to receive expert advice before you enter into a loan contract or real estate contract of sale.
Calling all first home buyers! If you’re ready to make your very first real estate purchase, there are first home owner grants you may be eligible for to help you get into your dream home. We’ve done a little research and rounded up a quick summary for you of how each state’s First Home Owner Grants stack up as they vary in amount and property value. Take a look at your state’s grant eligibility requirements and what you could receive when you decide to purchase your first home!
You’re eligible to receive up to $20,000 in First Home Owner Grants in Victoria depending on where you’re purchasing and the value of the home. If the home is in regional Victoria, you’ll receive $20,000 in FHOG – it’s the perfect excuse to make that move to the country! If the home you’re buying is not in regional Victoria, then you’ll receive $10,000 in grants. These grants are based on the purchaser buying or building a home up to the value of $750,000. There are also additional exemptions and concessions available to first home buyers such as off-the-plan and pensioner concessions, so make sure you do your homework and find out which grants are applicable to your purchase.
The First Home Owner Grant (New Home) assists eligible first home owners who are buying or building a home up to the value of $600,000, entitling them to a $10,000 grant. The NSW Government also has the First Home Buyers Assistance scheme, which provides exemptions or concessions on transfer duty for new and existing homes valued up to $650,000, and concessions on duty for new and existing homes valued between $650,000 and $800,000.
For first home purchasers in the ACT, a FHOG of $7,000 is available for transactions entered into before June 30, 2019 for properties whose total value (including land) is up to $750,000. Any transactions entered into after this date will not be eligible to receive the grant.
First home owners are eligible to either $15,000 or $20,000 towards buying or building a new home, and this grant covers houses, units and townhouses up to the value of $750,000. It also covers purchasers who are buying off the plan, meaning you can find a home design that’s already attached to titled land and ready to build to save yourself some time! If your contract of sale is dated between October, 2012 and June 30, 2016 OR from July 1, 2018 or later, you’ll receive $15,000. If your contract of sale is dated from July 1, 2016 to June 30, 2018 you’re eligible to receive $20,000.
In SA, the FHOG amount varies depending on a range of factors. Previously there were a range of grants available to first home buyers, however currently only first home purchasers of off-the-plan apartments are eligible to receive up $21,330 in grants where a transaction was entered into between May 31, 2012 to June 30, 2018. Unfortunately, established homes where a transaction was entered into from July 1, 2014 onwards are not eligible for any FHOGs.
The Tasmanian Government announced in the 2018/19 State Budget that the First Home Owner Grant would be extended for one additional year. First home owners will be eligible to receive $20,000 for transactions up to and including June 30, 2019. The extension of the FHOG ends on June 30, 2019, so there’s still a bit of time for you to find that dream home! Eligible transactions include a comprehensive home building contract for a new home, the building of a new home by an owner builder, and the contract for the purchase of a new home such as a spec. or off-the-plan purchase.
First home owners purchasing a new home in the NT are eligible for a FHOG of $26,000. The home must be a dwelling that has never previously been sold or occupied as a place of residence. There is also a $2,000 household goods grant available for eligible applicants who entered into a contract to build or purchase a new home on or after September 1, 2016. Alternatively, first home owners who are purchasing an established home may be eligible for a stamp duty discount of up to $23,928, as well as a home renovation grant of up to $10,000, which means it’s the perfect time to buy that fixer-upper you’ve been looking at!
This one-off payment of $5,000 is available to first home buyers who have entered into a contract to purchase or construct a new home between January 1 and June 30, 2017. This also covers owner builders who commenced laying foundations of their home between these dates. This grant has geographically determined caps on the total value of the home up to either $750,000 or $1,000,000 depending on the location.
No matter which state you’re purchasing or building your first home in, there are First Home Owner Grants to help you get your foot in the door of the property market. Doing a little research will benefit you and your bank account in the long run, as most states offer some kind of assistance to first home buyers, depending on the transaction date and the home’s value. The Hotondo Homes website also features a Borrowing Power Calculator to help you determine how much you can afford to spend on your dream home.
Hotondo Homes is not a registered financial advisory and therefore we recommend you speak to your financial advisor or mortgage broker to receive expert advice before you enter into a real estate contract of sale.
One of the biggest road blocks to becoming a home owner is saving a deposit to put towards your first home. Being able to put aside funds each week or month in a savings account to go towards the purchase of a new home is great, but these savings take time to build up – often years. In the meantime they can get depleted when we dip into them to pay for other things, moving that first home goal post further and further away. One great initiative that’s been launched by the Australian Taxation Office is the First Home Super Save Scheme. Aimed at first home buyers, this initiative was created to help Australians buy their first homes. We’ve summarised some of the key points below for you as per the ATO website’s information.
From July 1, 2017 first home buyers have been able to make voluntary concessional (before-tax) and non-concessional (after-tax) contributions to their superannuation funds. Then from July 1, 2018 you can apply to have these funds released, along with any associated earnings that have accrued and use these funds towards the purchase of your first home. One of the great things about this scheme is that you can use the funds as a first home buyer for either a property you plan to live in straight away as a family home, or for a property you plan to live in for at least six of the first twelve months you own it.
You can apply to have up to $15,000 of your contributions from any one financial year included in your eligible contributions released as part of the scheme, up to a total of $30,000 across all years. On top of that, you will also receive any earnings from those contributions which will add to the amount you have for a deposit.
You can only apply for a release of your funds once, and you should never sign a contract of sale or contract to build a new home until the funds have been released to you. If you don’t wait for the funds, you may have additional tax to pay. It can also take approximately 25 business days for funds to be released to you, so take this into consideration when you’re ready to sign a contract of sale. If you don’t have money for the deposit at the time of the contract signing, you may be in breach of the sale contract.
While you can start making contributions to your superannuation fund at any age, you can’t apply to have funds released until you are 18 years old. You also cannot have owned any kind of property in Australia (including investment properties, vacant land, commercial property, a lease of land, or a company title interest in Australia), or have previously requested a release of funds in relation to the scheme. If you wish to purchase a property with other people, you can each access your own funds individually, however if one of the purchasers has previously owned a home they will not be eligible for a funds release, however this will not prevent the other purchasers from applying for their funds.
Saving for your first home can seem like a daunting thing, especially when you need a sizeable amount of money saved up to do so. With this First Home Super Saver Scheme, you’re able to contribute savings to an account that’s not easily accessible, which means the funds will continuously increase and earn interest and your deposit will accumulate at a faster rate than a regular savings account.
For full terms and conditions and to learn more about this scheme, head over to the Australia Taxation Office Website. Hotondo Homes is not an authorised financial institution and we recommend home buyers always seek the advice of a registered financial professional before purchasing a home.
Before building or selecting a property to invest in, it is important to determine what your investment ‘gearing’ strategy is. This is where an understanding of whether your home is positively geared (a cash-flow property strategy) or negatively geared (a capital growth property strategy) becomes significant.
For a better understanding of what these terms actually mean, we have compared the two strategies and outlined the benefits and drawbacks of each. Consider both carefully before purchasing your investment property!
Generally considered the safer, more conservative method, positive gearing occurs when the rental income on your investment property exceeds the cost of maintaining it, including loan repayments, interest, rates and maintenance fees. Positive gearing allows for short-term profit, as the extra cashflow works as an additional income stream. Positive gearing works in areas where rental demand is high (so investors can charge higher rent) and when interest rates are low.
Negative gearing occurs when the property runs at a loss – that is, the rental income is less than the costs of maintaining the home. Investors will need to use their own funds to make up the shortfall. Ideally, a negatively geared investment will grow in value over time, and the increased profit from selling it is expected to outweigh the initial financial losses. Negatively geared homes are often located near capital cities, which generally perform better and increase in value over a longer period.
Hotondo Homes have over 90 home designs, perfect for investors. Find out more at hotondo.com.au
*Hotondo Homes is not an authorised financial adviser so please seek professional advice for your investing enquiries
In simple terms, equity is the difference between what your home is worth, and how much you owe on it. For example, if your home is worth $400,000 and you still owe $250,000, your equity is $150,000.
Within five to ten years of owning a home, you will have built a sizable amount of equity. If you are looking at purchasing another property, banks will generally lend you up to 80% of a home’s value without having to use Lenders Mortgage Insurance, and you may be able to access a portion of your equity to use for the remaining deposit.
For a closer look at using equity, check out RateCity’s guide to using home equity to buy an investment property.
House and land packages are a great way to reinvest your equity and make a return by using it as a rental property.
Packages offer convenience and the homes are specifically matched to suit the land. Building a house and land package will also result in paying less stamp duty. This is because you only have to pay stamp duty on the value of the land as the home hasn’t been built yet.
Potential investors should also consider the benefits of higher quality materials and construction techniques that new homes offer, resulting in little to no maintenance costs, energy efficient technologies and warranties on the home, its fittings and appliances.
Check out all the latest house and land packages by Hotondo Homes here.
When looking to use your equity, the bank will take into account your age, income, family, cost of living and any additional debt you may have incurred. It is also wise not to use every last cent of your equity so you can give yourself a safety buffer in case of emergencies. Before you start building your property portfolio, it is best you speak to your banker or broker.
*Hotondo Homes is not an authorised financial adviser so please seek professional advice for your banking enquiries.
Working towards a deposit for your home takes time and patience. The best way to approach it is to start with small changes in your life. This doesn’t mean giving up absolutely everything, but rather cutting back on the non-essentials in life. Every little bit counts, and each small contribution can result in big progress.
We have rounded up a list of nine things you can start doing today to help you improve finances and get on track to purchasing a new home in 2017!
Topping almost all financial guides is cancelling subscriptions to magazines or gym memberships you do not use. Another perhaps unnecessary purchase is cable TV. With so many cheaper, alternative streaming options available, it may be worthwhile checking out.
Shop around for your energy, gas, credit card and insurance needs. If you like the company you are with, a simple phone call asking for a reduction will often get you a cheaper price – they want to keep you as a customer! It may be painstaking, but renegotiating your bills could save you some big cash. If you already have a mortgage, it is worth speaking to your bank about an interest rate reduction too!
If you have a high-interest credit card, the first thing you should do is pay it off as fast as possible. Interest-related costs is basically dead money, so working to get rid of the debt should be your priority. Consider transferring the balance to a credit account with a lower or even zero-interest rate to further help your cause and improve finances in the new year!
The Australian Securities & Investments Commission can help you search for unclaimed money from various banks, building societies, credit union, life companies, friendly societies and registered Australian companies. Check out this link to see if you have any unclaimed funds!
Set your bank account to withdraw a portion of your earnings every time you are paid. By doing this straight away, you can never miss the money you never had! If you can transfer it to an online account you cannot touch, or does not have an attached card, even better. Be sure to figure out exactly how much you can afford to save per pay by creating a budget for the week, fortnight or month.
Just like renegotiating your bills, it is worth checking out your phone plan for cheaper alternative options. These days there are so many options including ‘bring your own phone plans’. These plans require you to purchase a phone outright, but the ongoing monthly cost of the phone plan is significantly cheaper than an all-inclusive one, which could work out cheaper in the long run. Carefully consider all your options and work out what is best for you and your lifestyle.
Plan out your meals for the week, write a shopping list and STICK TO IT. How many times have you gone to the supermarket and come home with items you never intended to purchase?
Not only can this be cheaper and healthier than eating out, but you can also cook extra to have for lunch or even dinner the next day, saving you even more cash.
Saving for a new home will require some discipline and cutbacks, but you still want to live and enjoy life while you do it. Don’t feel guilty for indulging every now and then and treating yourself. If you work hard to stick to improve finances for 2017, there is no reason to not go out, enjoy a nice dinner or hit the shops on occasion. Do not let your finances consume you!
Contact your local Hotondo Homes builder today to find out more and help improve finances next year!
*Hotondo Homes is not an authorised financial adviser so please seek professional advice for your banking enquiries.
You may only go through the process a handful of times throughout your life, so knowing all the ins and outs can be difficult. Read our top 6 things you need to know before building to arm yourself with the knowledge to get started!
1. Know all the numbers
Once you have a contract price for your house and land, you can work out how much you will need to borrow from a bank or finance lender, as well as your mortgage repayments. However, just because a bank says you can afford the loan, doesn’t mean you can. You need to consider additional costs such as the initial deposit, stamp duty, transfer duty, conveyancing costs, loan establishment costs and lenders mortgage insurance. There are also living expenses including gas, water, electricity, phone and internet bills, and if this is your first home, you may need to purchase new furniture and appliances. Know ALL the numbers when it comes to living in a new home before you commit.
READ MORE: SAVE MONEY ON YOUR BILLS IN 5 SIMPLE WAYS
2. Reputation of your builder
Do your research and find a builder with a good reputation. Better yet, if you have family or friends who have built a home you love, ask them for a recommendation. Always speak to your builder about what you want in a home, what your expectations are and how they can help accommodate this. If required, get them to run through the entire build process so you know what to anticipate. Get to really know your builder, and find someone you can trust – this is a huge commitment!
3. Know your land
Aside from the obvious including the price of your land and its proximity to essential amenities, schools and family, there are a few other points to consider when looking at your land. If your land is in a bushfire zone, there can be additional costs associated when building your home to adhere to the appropriate regulations. If your land has a significant slope, retaining walls or excavation may be required, again, which again can cost you more. You may also find the estate you have bought in has certain requirements when it comes to landscaping, façade choices and even letterbox options! Speak to your land agent or builder to find out if any of these are applicable to you.
4. Build to resell
No matter how much you love the house you are building, you need to consider a time when you may need to sell or possibly rent it out. In particular, if you are a first home buyer it is ill-advised to make too many upgrades to the home, especially if it puts your home in a price bracket above that of your neighbourhood’s. It may not actually increase the value of your home. You should also be careful on your colour selections – ask yourself if what you are choosing will be appealing to others.
5. Green your home
Take the opportunity to upgrade any appliances you have to a higher star rating. This can include washing machines, dishwashers, fridges, taps and light globes. Any step you can take to reduce your carbon footprint and your energy bills is a positive one.
6. Passive design elements
You can also consider building materials and other passive design elements to reduce the cost of your bills. Ensuring your main living areas are orientated north allows the sun to naturally heat your home in winter and cool it in summer, as well as provide natural light. Installing eaves, good insulation, glazed windows and other such devices will all contribute to a better home.
Do you have any other things you think you need to know before building? Let us know in the comments!
The keys are in your hand. You are ready to step into your brand new home. All those costs associated with it are finally paid, and now all you have left is the hefty mortgage you don’t want to think about – or so you think.
Unfortunately, new home owners can forget the cost of maintaining and living in a home. Water, electricity and gas bills, council rates and even home repairs for older homes can all have a significant and possibly unforeseen impact on your carefully devised budget.
Never fear though, we have put together a quick guide on ways to save money on your bills and help with the overall cost of your new home.
Install LED light bulbs and in the long-run you will save money on your electricity bill. A standard halogen light turns up to 90% of electricity used into heat, and only 10% into light. An LED light however only uses 15% of the energy a halogen uses, and provides up to 85% of the light output. LED lighting also has a longer lifespan, making them well worth the investment.
Ceiling fans are a low-cost, low-energy way to keep the air circulating in your home. If used in conjunction with an air conditioner, you can actually lower the temperature by a degree or two of the air con. This can lead to some surprising savings! While using a ceiling fan in summer is common practice, many people are unaware you can actually utilise them during winter too. Switch your fan into reverse, and hot air trapped near your ceiling will be redistributed to the floor. Remember to keep it on a low setting!
Plant deciduous trees – ones that lose their leaves in autumn/winter – on the west and east sides of your home. These trees will naturally cool your home is summer and allow sunshine through during winter. Be careful to plant them a safe distance from your home and power lines.
Everyone knows that a clothes dryer will eat up your power bill. If you are willing to give up the convenience, hang a line in your laundry and use it for at least some items. Even better would be hanging it outside where a natural breeze will do all the work. A load here or there will still save money!
We have mentioned the benefits of energy efficient appliances several times on this blog, however it doesn’t make it any less true. While they may be a more expensive upfront cost, energy efficient appliances will save you money in the long run and will help keep your hip-pocket happy.