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Finance

$3k is all you need to get started today.

When buying a brand-new home or building a home to live in, First Home Buyers are eligible for the First Home Owner’s Grant.

The biggest question for most First Home Buyers is finance – what can I afford? And often the First Home Owner’s Grant is what gives them the opportunity to get into the market. Because of this more First Home Buyers are choosing to build new homes than ever before. Keep in mind, when building, the biggest unknown – what is under the ground.

  • Borrowing
    Capacity
  • Security
  • Lenders
    Mortgage
    Insurance
  • Genuine
    Savings

What is Borrowing Capacity?

Borrowing Capacity or Serviceability is the amount of money that you can borrow from a lender.

This is basically a monthly cash flow that looks at your incomes, debts and makes an allowance for your living expenses to determine if you can afford the loan repayments. Each person will have a slightly different borrowing capacity at each lender due to the different policies and lending rules.

It’s quite easy for two people on $50,000/yr each, with no other debt, to afford the repayments on a home loan of over $600,000. However, just because they can afford the repayments doesn’t mean they can get a loan for that amount, they still need enough Security.

What is Security?

Security is the lender’s collateral for the loan. This can be one, or a combination of, the following:

Savings – Money that you have saved from your job
Guarantors – Someone like mum or dad, who already has a house
Grants – the First Home Owner’s Grant or similar schemes
Gifts – money deposited from friends and family

When buying a home to live in, the main Security is the house itself, if the borrower fails to pay the loan, the lender can sell the house to recover the debt. In order to ensure that the lender can recover the loan they need some additional security from the borrower which can come in any of those mentioned in the list above.

If the borrower has less than 20% of the purchase price in Security then they will have to purchase Lender’s Mortgage Insurance (LMI).

What is Lenders Mortgage Insurance (LMI)?

If a borrower doesn’t have at least 20% of the purchase price in Security, the borrower will have to purchase Lenders Mortgage Insurance (LMI) to qualify for the loan.

LMI is a one-off fee charged by a third party insurance company that insure the bank’s loan in case you are unable to pay it. To qualify for a mortgageinsured loan, there are a few extra requirements that the lenders have. These requirements are knows as Genuine Savings.

What is Genuine Savings?

Genuine savings are what a borrower needs to get a mortgage-insured home loan. Genuine savings generally fall into two different categories, full genuine savings and non-genuine savings.

Full genuine savings is when a borrower has saved at least 5% of the purchase price in an account in their name/s. If any of these funds were not saved from the borrowers’ job, then those funds will have to remain in the account for 3 months before they are considered genuine.

Non-genuine savings is when a borrower has been renting through a registered real estate agency for at least 6 months and the real estate agency can provide a tenant ledger showing no late payments. This can be from multiple agencies and multiple properties if the borrower had moved houses within the 6 months.