Learn how new government schemes can support first home buyers

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Did you know that it can  take up to seven years for the average household to save a 20% deposit for their first home loan  ? However, a new scheme promises to drastically reduce that time by dropping the required deposit to just 5%.

The Coalition government has recently announced a plan to let first home buyers borrow up to 95% of the value of a property and still avoid paying lenders mortgage insurance (LMI).

Now, the First Home Loan Deposit Scheme “isn’t free money”, but it does means fewer young Australians will need to ask the “bank of mum and dad” for cash upfront.

Labor has now matched the proposal, meaning it should go ahead no matter who wins government this election.

Why is this a big deal?

As it stands, it is possible to get a home loan with just a 5% deposit.

But people with a deposit of less than 20% usually have to pay LMI, which can be a pretty big deterrent if you’re wanting to purchase your first property.

Basically, LMI is the insurance that reimburses a lender if a property is repossessed and sold for less than its outstanding mortgage debt.

The insurance is designed to cover the lender, but the premium is paid by the borrower.

Under the new scheme, the government would guarantee the additional amount needed to reach the 20% threshold, which would save borrowers thousands of dollars in LMI.

How much could I save?

Let’s say you want to purchase a $400,000 home to get your foot in the property market.

Currently, if you have saved up $62,000 for the deposit and fees, you’ll have around a 15% deposit. In that case, you’ll pay about $3,500 in LMI.

If you have pulled together a 10% deposit ($42,000 in savings), you’ll be up for $6,500 in LMI.

And if you’ve only put away a 5% deposit ($22,000 in savings), you’ll face $12,500 in LMI.

As you can see, that’s quite a lot of money you’ll be able to save in LMI under the new scheme.

The key features of the government’s policy:

We’ve gone through the government’s policy and pulled out some of the key bits we think you should know . They are as follows:

– The scheme will start on 1 January 2020.

– To be eligible first home buyers can not  have earned more than $125,000 in the previous financial year, or $200,000 for couples.

– The scheme will be limited to 10,000 first home buyer loans each year.

– The lender will still have to undertake the full normal credit check process .

– If the borrower refinances, or the loan comes to an end, the Commonwealth support will terminate.

– First home buyers will be able to use the scheme in conjunction with other relevant State  first home buyer grants and duty concessions.

Other factors to consider

Keep in mind that having a 5% deposit, rather than a 20% deposit, means that the monthly repayments on your home loan will be larger.

You’ll also likely pay tens of thousands more dollars in interest over the life of a 20-30 year home loan.

That said, this scheme will enable many young Australians to start growing their property portfolio years earlier than they otherwise could have.

And for most people, it will also mean they can save a few years paying rent.

For example, if you’re paying $400 a week in rent, that’s $62,000 over three years that could have gone towards the mortgage on your first property instead.

 

Final word

As we’ve alluded to, lenders will still be required to go through all the checks  to ensure a first home buyers are  genuinely able to afford their home loan mortgage.

We’d love to provide you with some helpful tips to ensure that when lenders look through your accounts  your prepared. If you want help getting into the property market,  please do not hesitate to get in touch.

New born’s and New finances

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Welcoming a baby into your family is one of the most joyous occasions of your life. But just like anything worth celebrating , it’s not without its expenses.

How quickly they grow! The bills, that is.

Did you know it costs roughly $300,000 to raise a child from birth to age 17?

If you break that down, that’s $1470 a month. This can put a significant strain on your monthly budget and mortgage repayments.

Rest assured, however, there are several steps you can take in advance to minimise the impact on your new family’s bottom line.

1. Baby essentials

The upfront expenses  of having a baby are really going to put out your budget, hard. So it’s best to obtain the items you’ll need well in advance to spread out the initial costs.

Of course, you can purchase a brand new bassinet, playpen, clothing, car seat, cot, stroller, toys, high chair and changing table.

But chances are you don’t really need that fancy, brand new $1,000 cot.  Instead, focus on the babies needs instead of your wants.

There’s absolutely nothing wrong with obtaining gently-used items second-hand, through trading websites or for free from family members or friends.

2. Your rights to  paternal leave and corporate leave

If you worked before having your baby and made under $150,000 annually, you could be eligible for the government’s Paid Parental Leave program.

You do have to apply, but if eligible you are entitled to 18 weeks of minimum wage benefits (amounting to $719.35 per week before taxes).

There is also a two-week partner and dad pay option available, and take time to look into your company’s leave programs.

3. Plan for Childcare

Unless you plan to stay home with your children or have family members who will help provide childcare,  it is a good idea to get your name wait-listed at several childcare facilities.

Availability is  hugely competitive , so getting on the lists quicker will help in the long run. You can use the Childcare Subsidy Estimate Calculator to figure out if you’re eligible for entitlements.

4. Update your life insurance

It’s not uncommon for Australians to have disability and death benefits through their super fund.

However, while the life insurance coverage may have been adequate pre-children, there’s a good chance it won’t be enough for a single parent to comfortably raise a child.

Additionally, you don’t want to fall into the trap of just insuring the breadwinner in your family. Each member  should have coverage in case something happens to one, or both, of the parents. This can be a complicated area to navigate alone though, so be sure to seek financial advice from a  professional.

5. Future proof yourself…

Even if you don’t have significant assets or debts, you need a Will if you have children.

Not only does a Will specify what your family does with your belongings (including your super and insurance), but it also specifies who makes decisions if you can’t make them yourself, and who will take over raising your child  if both parents pass.

6. Pay off existing debt

If it’s possible, prioritise your existing debt and work on paying it down – or off – before the baby is born.

Once the baby arrives, you may not have a whole lot of spare money to put toward any existing balances. Consider speaking to us about consolidating  debts or refinancing  your loans or mortgages into one with a lower interest rate.

7. Update your monthly budget

One of the best things you can do is update your monthly budget with your newest family member in mind. It’s also great to start living on this budget before the baby  arrives, – start practising living on less.

You can update or create your budget using ASIC’s Budget Planner. Don’t forget to include your quotes for childcare and any new miscellaneous expenses you’re likely to incur.

8. Start an emergency fund

If you don’t have an emergency fund, now is a great time to start one.  Aim to have at least three to six months worth of living expenses saved, with the goal of at least a year’s expenses.

This can provide a buffer that you and your family fall back on if you run into unexpected expenses like an accident, the car breaking down, or something in the house needing immediate replacement.

Final word

Having a baby is one of the most life changing events that can happen in your life.  The last thing you want to be doing during this happy time is to worry about your finances. That’s why it’s so important to prepare as early as possible.

We would love to help make sure that your first few months as a new family are stress free as possible- just talk to us !

5 Christmas tips to help you save this silly season

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While it’s important not to get caught up in the festivities too early, now’s actually a great time to start prepping to ensure a budget blow-out doesn’t derail your mortgage repayments over the silly season.

The best bit? By following some of the below tips, you can turn the retailers’ early mind games against them and save money instead!

1. Buy food ahead of time

Christmas time tends to lead to a lot of socialising. Even if you aren’t the one catering, requests to bring a plate can add up over time.

Make a point of keeping an eye out for food and drinks specials ahead of time when they are on special. That will make it much easier to stretch the food budget over Christmas.
And home made treats are always best,  it just takes a little more organisation.

2. Opt for Secret Santas

For people who have a large family or friendship circle, Christmas can lead to a long list of presents to buy. Many people prefer not to get extra clutter for their kids, so suggest a Secret Santa arrangement instead of buying for every person.

This way you can put more thought into each gift as well as not creating more stress.

3. Homemade wrapping paper

If the end of term results in your kids bringing home sheets of artwork, why not recycle these and use them for wrapping paper for the extended family?

Not only does this mean that the kids get to see their artwork being passed on to loved ones, but it also saves you money on buying wrapping paper that will be in the bin by Christmas morning.

4. Shift the focus

Rather than dwelling on social media posts of the perfect Christmas morning with matching pyjamas, shift your focus to the true meaning of Christmas: helping others who are less fortunate.

For instance, instead of getting new books for Christmas Eve story time you could choose books from the library and make a donation to charity that helps literacy in at-need communities.

5. Keep a track of your spending

With a large percentage of Australians overspending at Christmas (and feeling guilty about it), it’s important to keep a budget for Christmas and any associated events – like holidays – over that time.

The summer break is a great time to look at your family finances to see whether you can save money by refinancing your current home loan and even consolidating your credit card debt.

You might just  be able to save enough money for an even better Christmas celebration next year.

We’re here to help,   give us a call

 

 

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Five common reasons home loan applications are rejected

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Whether it’s unrequited love, or an unsuccessful home loan application, getting your heart broken is never easy. Here are five common reasons home loan applications are rejected.

Due to the banking royal commission, lenders are cracking down on home loan applications.

Applications that would have been approved in a just few days last year are now being put under the microscope for much longer periods.

To help you in your quest to secure an approval, here are five common reasons a lender may reject your loan application.

1. No proof of genuine savings

Lenders use the term ‘genuine savings’ to describe funds you’ve saved over a period of time.

Basically, if you can’t prove to them that you can knuckle down and save for a home loan, they’re going to baulk when it comes to believing that you can pay one off.

Here are seven ways to prove ‘genuine savings’.

– Regular deposits into a savings account over 6 months.

– Term deposit savings accounts held for at least 3 months.

– Shares or managed funds held for at least 3 months.

– Rental history for the past 6 months.

– Salary sacrificing through the First Home Super Saver scheme.

– Additional repayments into a car loan or personal loan.

– Deposit paid to a real estate agent, builder or developer that was originally in your savings account prior to being paid (ie. not borrowed from somewhere else).

2. You spend like a drunken sailor

Lenders not only want to see you save money. They also want you to demonstrate that you can exercise discipline when it comes to your spending habits.

Therefore lenders will trawl through your spending accounts hunting for any big-ticket items that are out of the ordinary.

This might include a $400 ATM withdrawal at a casino, or a $100 purchase at a baby store if your application says you don’t have children.

3. Your credit history ain’t so hot

Since Comprehensive Credit Reporting was introduced in July, lenders have been sharing a lot more of your credit history.

You can get a free credit report once a year from one of three national credit reporting bodies, which are listed on this government website.

If you find errors in your report, you can get them corrected. You can also take steps to improve a ‘poor’ rating by clocking up a period of consistency and reliability.

4. You don’t have a big enough deposit

Lenders like to see that you’ve saved a deposit of at least 10% to 20% before applying for a home loan.

But all too often people forget to factor in additional funds for other expenses such as stamp duty, lender’s mortgage insurance and removalist costs.

That means, for example, if you have saved $70,000 for a $700,000 loan, you might want to keep saving for a little while longer before you apply for a loan to factor in those other expenses.

5. Your employment situation

Even if you tick all of the boxes above, lenders may also reject your loan application if you haven’t been in your job long enough. And if you’re unemployed, they can’t approve it full stop.

Those who are self-employed are also running into headwinds. Lenders are becoming increasingly hesitant to approve loans unless a steady and reliable income stream can be proven. That said, there are lenders who are more flexible when it comes to self-employed workers, and we can help guide you towards them.

How we can help

We help people who are seeking a home loan overcome all of the above hurdles on a daily basis.

So if you or someone you know has recently had a home loan rejected, or you simply want to nail it the first time, get in touch.

We’d love to help you navigate the tighter lending standards to make your dream of home ownership a reality.    Just call us.

 

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Using your super fund to save for your first home

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For most first home buyers, the property market can seem like a tough nut to crack. But today we’ll look at a new super scheme that makes it a whole lot easier to save for a deposit.

Heard of the First Home Super Saver (FHSS) scheme?

No? Fair enough, it hasn’t been around that long.

In fact, it was only introduced in last year’s federal budget to reduce pressure on housing affordability.

Basically, the scheme allows you to save money for a first home inside your superannuation fund, which in turn allows you to save faster due to the concessional tax treatment that super offers.

Under the scheme you can make voluntary before-tax contributions (including salary-sacrifice, taxed at 15%) and after-tax contributions into your super fund.

Then, from July 1 this year, you’ve been able to apply to release your contributions, along with associated interest earnings, to help you purchase your first home.

Contributions and withdrawals

Before you begin, you’ll need to double check your super fund will release your savings under the FHSS scheme and find out about any fees or insurance issues that could arise.

You’ll be able to make a maximum of $15,000 in eligible FHSS contributions in any one financial year, and a total of $30,000 across all years.

Now, remember before-tax contributions are taxed at 15%, so you’d be able to withdraw up to $25,500 to use for a home deposit.

The good news? That amount will most likely have accrued interest over the years, which you can also withdraw.

The bad news? You must pay a marginal withdrawal tax (less a 30 per cent offset).

You win some, you lose some.

Case study

The government has this handy calculator that can help you calculate how long it will take for you to save for a house deposit under the scheme.

In this instance, let’s say you’re on an income of $70,000 per year.

If you make an annual salary sacrifice contribution of $6,000 into your FHSS, you’d only reduce your take home pay by $3,890.

After five years of saving, an estimated $26,994 will be available for a deposit under the scheme – about $6,992 more than if the saving had occurred in a standard deposit account.

Better yet, if you’re saving for your first home as a couple, that’s a tad under $54,000 for a deposit in just five years.

To qualify for the scheme you must:

– Have not previously owned property in Australia

– Have not previously released FHSS funds

– Intend to live in the premises you buy for at least six of the first 12 months you own it

– Be over 18-years-old when requesting the release of your funds

– Not claim your place of residence will be a houseboat, a motor home or vacant land.

Final word

Saving for your first house deposit can be tough. But by doing it through the FHSS scheme not only are you saving at a faster rate due to the concessional tax treatment that super offers, but you won’t be tempted to use the funds for a holiday, new car or general purchases – because you can’t.

So if you’d like to know more about the FHSS scheme, give us a call. We’d be happy to look at your individual circumstances to work out a savings plan that best suits you.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.