How to Go from a Tenant to a First Home Buyer in 3 Easy Steps

Don’t get hung up on having 10% or 20% deposit…

If you are determined to get into the property market, you need to start thinking about several ways on how you can get in faster; this includes paying a deposit.

In fact, 5% is also an option

A lot of young people assume that the deposit ranges from 10-20% when the average minimum deposit you can do is only 5%. For instance, a $600,0000 property means a deposit of only $30,000 and not $120,000. This has been the case for the past 30 years and it’s a surprise that several home buyers are used to the “20%” they are being quoted.

Buy off the plan

With regards to purchasing a property that is still in development, time is your ally. This is because you may only have to pay an initial deposit of as little as $1,000, and you can then pay the remainder of the purchase price until the development is completed. You may also receive additional government incentives for purchasing a new property.

This could take anywhere from 6 months to 4 years to complete, which gives you extra time and money to plan and save, this also allows your property to grow in value. For example, in a balanced market, you would generally expect prices to trend upwards during an 18 month to 3 year construction cycle, so you could find that by the time your property is completed, it will be worth more than you are paying for it.

On the other hand, it’s still crucial to know that markets are cyclical; this means that even though property values have steadily increased over the long term, with average property prices doubling every 10 or so years, there are still short term fluctuations where the market goes up and the market goes down.

Be knowledgeable of your benefits

If you’re a first time home buyer and are eligible for government incentives, you will be allowed for an easier and faster access to the property market. So, make sure you know what you are entitled to.

The First Home Guarantee Scheme

The new government scheme for first time buyers is the First Home Guarantee Scheme. As long as you’ve saved at least 5% of the value of the property you’re purchasing, Under the FHBG, part of an eligible first home buyer’s home loan from a Participating Lender is guaranteed by the National Housing Finance and Investment Corporation (NHFIC). This enables an eligible home buyer to purchase a home with as little as 5% deposit without paying Lenders Mortgage Insurance. 

Any Guarantee of a home loan is for up to a maximum amount of 15% of the value of the property (as assessed by the Participating Lender). This Guarantee is not a cash payment or a deposit for a home loan.

Stamp Duty Concessions

Stamp duty is a tax paid by the buyer of a property. It can be a substantial additional cost of buying a property so the Queensland government has decided to help first home buyers out by giving them an exemption on all or part of the cost of the stamp duty. It’s similar to the vehicle stamp duty you pay when registering/transferring the registration if buying a car.

The concession is based on whether you are buying an existing dwelling (i.e. one that has already been lived in) or you are building a new home. It also changes depending on the value of the property.

Use a guarantor

A guarantor is someone who provides a guarantee to the lender on behalf of a third party; usually an adult child or close family member. The guarantee works by using all or part of the equity in the guarantor’s own property as security for the loan.

This allows the borrower to borrow up to the entire cost of the property – up to 105% in order to cover purchasing costs – without a deposit.  It can also be useful for borrowers who do have a deposit but less than the 20% required to avoid Lenders Mortgage Insurance. As the guarantor property provides security for the lender, LMI is not required.

Don’t wait for the money to begin your purchasing journey

Even without the deposit, you can always kick start your journey by looking at the type of properties you are interested in purchasing. What is your borrowing and repayment capacity? What does 10% or 20% actually look like for your situation? 

In fact, starting conversations with the right people could get you into the market easier and faster.

Focus on the first home… not the DREAM home (not just yet)

Remember, the goal is to get into the property market. By tweaking your perspective on the type of property you want to purchase as your first, reaching your goal faster which will then set you up to get you closer to that dream home in the future will be much more ideal.

Your answers to these questions may give you a more realistic savings goal and may even determine whether you’ll buy something new or something that’s already been lived in. It may even suggest that you use the property as an investment rather than a residential one.

But of course… The first step to becoming a first time home buyer is chatting to experts like Reval Estate Agents. If you’re looking for the perfect first homes out there, you can always talk to us.