Questions from a first home buyer

Any general questions you might have in regards to loans and finance.
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zeph34
Posts: 2
Joined: Mon Aug 16, 2010 9:01 pm

Questions from a first home buyer

Post by zeph34 »

Hi all, I have some questions about buying my first property/applying for my first home loan...

Employment & Salary:
5 years with same employer, yearly income is $35,000.

Debt & Rent:
No debts, own my car. No rent, I live with my parents. I have two credit cards, totalling $5,500. Always paid off on time. No real expenses, no children etc.

Savings:
I currently have $65,000 genuine savings, plus a $10,000 gift from my parents (not currently in my account).

I am starting to look at buying my first property - this property will be an investment property, to rent out. Looking at the $250,000 - $300,000 market.

- Do you think that I'll be ok to get a loan?
- I presume it isn't worth considering applying for the FHOG, as I want to rent the property asap. If I have to live in the property for 6 months, I would need to connect phone, water, electricity etc. I would also miss out on 6 months worth of rent, which would all but negate the $7,000 grant (I'm in Victoria)? Are there any other first home owners advantages to consider (want to buy an existing house, not regional)?
- Would getting rid of one of my credit cards help? To bring down the credit card total to only $2,500? Should I do this sooner rather than later?
- Is there anything else I can do to better my situation, other than continue to save for the deposit until I find the right place?

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Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Questions from a first home buyer

Post by Otto Dargan »

Firstly well done on saving $65,000. This is excellent evidence to any lender that you are very responsible with your finances.

Yes you should qualify for an investment loan for a purchase of $250,000 to $300,000. I agree that it would be wise not to apply for the FHOG, you can always use it later when you buy a property to live in.

At present it would be best to keep your credit cards. When you speak to one of our brokers and they work out which lender to get pre-approval with they can then advise if it is best to close them or keep them open. It really depends on the lenders policy. Some will not take them into account at all if they are paid off in full every month over the last 3 months.

Just to let you know choosing the right lender is critical for your situation. Some lenders do not like lending to people who are living at home and buying an investment property before buying a place to live in. What these lenders do is add a $150 / week expense for rent when assessing your ability to repay the loan. They do this because they figure that you could move out of home at any time. Unfortunately in your situation this would likely mean that you would fail their serviceability requirements. Don't worry there are quite a few lenders that can still assist.

It looks to me like you are ready to buy right away. If you can increase your deposit just a little so that if you buy a property for $300,000 you don't need to borrow over 80% then that would be ideal. That way you can avoid LMI. For a $300,000 purchase you would need $74,000 approx to avoid LMI. If your parents do give you a gift of $10,000 then you will not need to save any more money.

I would recommend that you find a good conveyancer. We know a great Melbourne conveyancer if you need one. Then I would recommend that you learn how to value a property so that you can avoid overpaying. Then obtain a loan pre-approval and you are ready to buy! You can call us on 1300 889 743 and we can help you with the pre-approval. In Melbourne most sales are by auction so a pre-approval is essential.
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

zeph34
Posts: 2
Joined: Mon Aug 16, 2010 9:01 pm

Re: Questions from a first home buyer

Post by zeph34 »

Thanks for your response Otto. I should probably clarify - I live in my parents second house, rent free. Do you think that this will make any difference when calculating loan amounts etc?

Also, I've started looking at different loans to get an idea of what's available, and I'm having trouble getting my head around "offset accounts". Am I right in saying that putting extra income into an offset account vs directly into the home loan end up paying off the interest/home loan at the same rate? If free redraw is available, then the cash is available just as easily as if it is in an offset account? BUT there are tax implications if the house is to be an investment (which it will be) and money is redrawn?

I'm thinking that it's best to get a home loan with a tax offset account (which appears to be more "expensive" than other simple loans), and *all* income goes into that, and bills etc are paid from there, is this right?

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Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Questions from a first home buyer

Post by Otto Dargan »

Yes living in their 2nd property rent free is fine, that will not change anything.

An offset account would be helpful, although not essential, because your property is for investment purposes. I can't give taxation advice however as you mentioned below there are some potential benefits to paying money into the offset account rather than into the loan account. You may like to discuss this with one of us over the phone as offset accounts can be hard to explain.

Yes usually you would have all your bills and income go through the offset account. The more money you have in there the better!

Depending on the size of your loan and the lenders you qualify with you may not need to pay a higher rate to get an offset account. Some of our lenders do not charge any extra for it. At present (18/8/10) the lowest interest rate loan we have available from our panel of lenders is at 6.46% and has 100% offset too! So you will not necessarily need to pay more.
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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