First time home buyer essentials

Buying your first home? Go, you! Now’s the time. IMB’s First Home Buyers Guide provides easy explanations through the journey of buying your first home. Let’s rip into it.

You are no doubt already scouring real estate sites like Domain.com.au and RealEstate.com.au to find your first home. Not only is this process lots of fun, but it will sharpen the mind to what area is most suitable for you, what type and size of dwelling you can afford, and how much your deposit will need to be for your home loan. Speaking of which…

How much deposit do I need?

Let’s start from scratch. A frequently asked question is: “Is there such a thing as a no-deposit home loan for first home buyers?” The simple answer is no, except in the case of a Family Guarantee Loan (see below). Without a guarantor (and often even with one) lenders will need to see a history of saving.

At IMB, you will need at least 10% of your property value saved as a home loan deposit – and you will need to factor in costs like stamp duty, conveyancer fees and any other miscellaneous costs like removalists. In general, rates can be more competitive the larger your deposit is against the purchase value. Check out IMB’s home loan rates and packages. Importantly, any loan with a deposit less than 20% of the property value will require Lender's Mortgage Insurance (LMI) Insures the lending institution for any losses it incurs should the borrower default and the property needs to be sold. LMI is paid for by the borrower if they have a less-than-20% deposit of the purchase price. LMI can cost several tens of thousands of dollars, and increases exponentially the more you borrow..

 

What is 'LVR'?

The Loan-to-Valuation Ratio, or LVR, is the percentage you borrow for a home loan compared to the value of the property. This is the way financial institutions express the value of your deposit. When you apply for the home loan, the lender will independently value the property and calculate how much of the property’s value your deposit will cover. If the property is valued at $500,000 and you have a 10% deposit of $50,000, then your LVR is 90%. Lender's Mortgage Insurance (LMI) is applicable for any LVR over 80%. And there is only one home loan if your LVR is 100%. And that’s…

 

What is a no deposit home loan?

IMB’s Family Guarantee Loan allows your family to help you purchase a property by offering security for the difference in LVR against their own property, or an investment like a term deposit. This security will ensure that Lender’s Mortgage Insurance is waived. There are still criteria considered, including your capacity to cover fixed expenses like rent, power and so on. Find out more about how IMB’s Family Guarantee Loan works.

 

How to save money for a house deposit?

There are myriad ways to save money, but these are proven money saving tips to simultaneously budget and save money fast in a big way, accelerating your ability to save your deposit for your first home loan (or a car, holiday, investment property: you name it).

Have a Savings Goal

Knowing what you want to save is the starting point. When buying a house, that amount is usually your deposit: If the average price of the properties you are researching is $750,000, and you are looking at a 10% deposit, $75,000 is the goal. So, how do you get there? You start with...

Budgeting

No savings plan is complete without a budget. Before you start saving, you need to know where your money goes. Track your spending over a given period, say two months. Calculate your income and expenses, review your results and adjust any non-essential spending accordingly. Most important: stick to it.

There are loads of apps to help you budget. Check out IMB's Budget Planner to get you on the right track, or download the ASIC’s MoneySmart Budget Planner, an Excel spreadsheet that is pre-loaded with all of the formula to map out your spending and income. Find out more about creating and sticking to a budget.

Consolidate your Debts

Pay down as much debt that you might have, including credit cards, personal loans and outstanding bills, as soon as you can. Debt can impact the amount you can borrow, but is by no means a deal-breaker. Speak with IMB’s Home Loan Specialists with help on consolidating, paying down your current debt or obtaining a home loan with some debt.

Open a Separate Savings Account 

Trying to save in an everyday transaction account can be tricky. You may be missing out on earning interest as most transaction accounts tend to have a lower interest rate than savings accounts. It can also be confusing trying to mentally separate what you can and can’t spend. The reality for most of us is this: when it's in front of us, we will spend money.

Look around for a savings account that pays high interest or offers bonus interest for regular saving and use this as your ‘House Deposit’ account. Having the funds separate helps remove the temptation to spend it and will also make it easy to keep track of your progress. IMB’s Reward Saver account rewards regular depositing and discourages withdrawal until you are ready for the big one. You can open a Reward Saver account online, it only takes minutes.

Set up an automatic payment plan into your ‘House Deposit’ account

One secret to changing or starting a new behaviour is to remove the decision-making element. If you have to manually transfer your savings amount to your House Deposit account every pay, you have a chance to decide not to do it this week on account of a million potential reasons – you’ve had an unexpected expense, you accidentally bought a new pair of jeans or you want to go out for dinner on the weekend. By setting up a regular transfer, the money is saved before you even think about it.

Move in with the folks

Sure, moving in with family members could seriously dent your sense of self. But rent is usually our biggest expenditure. It’s also where you could make the biggest savings. If you are in Sydney, the median weekly rent for a house is $540 a week (units are $530), according to the Domain Rental Report. This comes in at a cool $28,080 per year. Given that the average household energy bills come in at around $1,900 per annum and you are spending close to $30,000 a year!

If that is just too grim to bear, consider house-sitting long-term and only crashing at your parents when you need in between house-sits. You will usually have to pay for the utility bills but you might just land yourself a long-term house-sit in a posh suburb. No lifestyle downgrade needed. You could try Aussie House Sitters or Mind a Home.

First Home Super Saver Scheme

A Federal Government initiative, the FHSS lets first home buyers make voluntary before tax contributions to their superannuation fund for a maximum of $15,000 a year and to a total of $30,000. You can withdraw these funds and the returns they earn over the period when you go to buy a home you plan to live in for six months. This accelerates your savings potential because all the contributions are pre-tax, and super funds typically earn higher rates of return than savings accounts. There are conditions of course, but this is another tool to get your first home deposit saved faster. 

 

Am I eligible for a First Home Owners Grant?

Introduced in 2000 to get first home buyers into an exploding housing market, most states and territories now have a version of the First Home Owner Grant (or FHOG) schemes for new home buyers. Over the years, the criteria and entitlements have changed, so it is best to check out FirstHome.gov.au to find out whether you are eligible and what the terms and conditions are for First Home Buyer assistance in that state or territory, be it an FHOG or concessions on stamp duty.

For now, let’s look at NSW and the ACT, where recent changes have altered the journey to purchase for First Home Buyers.

ACT: HOME BUYER CONCESSION SCHEME

In the nation’s capital, the First Home Owner Grant ceased on July 1st, 2019. However, Stamp Duty Also known as Transfer Duty, Stamp Duty is a state government tax which is payable when a property is sold. You’ll have to pay stamp duty within 30 days of purchasing the property. How much it varies from state to state and by the price of the property. is no longer payable on all property types, including vacant blocks of land, provided the buyer meets certain criteria. Again, this could save tens of thousands of dollars off your home purchase. Check out the full details of the ACT’s First Home Buyer Concessions Scheme.

NSW: TWO SCHEMES!

In NSW, there are two schemes which first home buyers can access. The First Home Buyers Assistance Scheme (FHBAS), and the First Home Owner Grant. If you are eligible for both – and both can be used together – then you could save up to $34,000 on a purchase of a home worth $650,000.

NSW First Home Buyer Assistance Scheme

The FHBAS offers first home buyers an exemption from Stamp Duty (also known as Transfer Duty) on new and existing homes valued less than $650,000 and at concessional rates for homes between $650,000 and $800,000. Check out the full details and requirements for the NSW First Home Buyer Assistance scheme.

NSW First Home Owner Grant

The FHOG is a $10,000 grant towards the purchase price of new homes (ie – homes that no-one has lived in before) worth less than $750,000 only. It can be accessed in addition to the FHBAS. Read more about the full details and requirements for the NSW First Home Owner Grant.

 

What are other costs when buying property?

In addition to your deposit (and Lender's Mortgage Insurance (LMI), you should budget for any upfront costs such as stamp duty, conveyancing fees, establishment fees on your loan, as well as ongoing costs such as property maintenance and loan repayments. You may be able to include some of these costs in your loan, but these costs will add to your loan amount and affect your LVR. As always, having saved the money for these along with your deposit will mean you borrow less and get your home loan out of your life sooner. Your Home Loan Specialist can run you through what loans attract what fees and where you can make savings. Any costs in advertised rates will be expressed as a Comparison Rate A comparison rate helps you work out the true cost of a loan. It reduces to a single percentage figure the advertised interest rate plus fees and charges relating to a loan. alongside the advertised rate. Check out IMB’s home loans.

 

What is Stamp Duty?

Also known as 'transfer duty', stamp duty is a state government tax which is payable when a property is sold. As mentioned, some state governments have stamp duty concessions for First Home Buyers – check with your IMB Home Loan Specialist or log on to your state government website for information on the possible concessions available to you. Or use our Stamp Duty Calculator to see how much it might cost you.

 

Important Information:
IMB Ltd trading as IMB Bank | ABN 92 087 651 974 | AFSL 237 391 | Australian Credit Licence 237 391. Normal IMB lending criteria, terms and conditions, fees and charges apply.The advice on this website has been prepared without taking account of your objectives, financial situation or needs. Before you act on this advice you should consider the appropriateness of this advice in regard to your objectives, financial situation and needs. You should consider the relevant Terms and Conditions or Product Disclosure Statement before deciding whether to acquire any of the products shown on this website.