First Home Buyers

Lenders have their own language when it comes to talking about finance and how much you can afford to borrow. Here are some of the most common terms you may hear and a brief understanding of what they mean:

• Loan to Value Ratio (LVR) - LVR put simply is the loan amount divided by the value of the property represented as a percentage. So, for example, you are borrowing $400,000 and the value of the property is $650,000 then your LVR would be 61.5%. Generally, the lower the LVR the less risk your loan is to the lender.
• Lender's Mortgage Insurance (LMI) is a non-refundable once-off premium you will generally have to pay if the LVR on your loan is higher than 80%. This is because the lender considers your loan to be risky should you default. It is important to remember that LMI protects the lender if you default on your loan. It does not protect you as the borrower. If you are concerned about how you would continue to make repayments if your circumstances changed, then speak to your broker about a loan protection plan.
• Debt to Income Ratio (DTI) - DTI is calculated by dividing your total debts (including the amount of your planned mortgage) by your gross income. So, for example, if you plan to borrow $400,000 and you have a credit card of $10,000 and personal loan of $20,000 then your total debts would be $430,000. If your gross income was $95,000 per year, then your DTI would be 4.52. All lenders will have a different policy but generally anything under 6 is considered acceptable.
• Loan to Income Ratio (LTI) - Works the same as DTI but only considers the loan amount and your income. It doesn't take into consideration any other debts.

Before you find your dream home, it is important to understand how much you can afford to borrow. Start by using our Borrowing Power Calculator. This calculator evaluates your income, living expenses, loan repayment, credit card limits and any other existing debts and provides you with an idea of what you can afford to borrow and the expected monthly repayments. Always remember that these calculators are an estimate only and don't take into consideration your individual circumstances.

It is important to be realistic about what you can comfortably afford. You should consider not only the monthly repayment but the additional ongoing costs of owning a home including utilities, maintenance, insurance and rates.

You also need to factor in other costs of the purchase such as Tasmanian Stamp Duty and legal fees. From 18/2/2024, Tasmanian first home buyers purchasing a house, unit or apartment under $750,000 in most cases are exempt from paying stamp duty under the Tasmanian Government's Stamp Out Stamp Duty initiative.

After you understand you borrowing power, you can go one step further and apply for pre-approval. While it's not essential to have pre-approval, it does show vendors and agents that you are serious about purchasing a home.

It is important to understand that having your loan pre-approved doesn't mean your final application will be approved but it does give you a strong indication of what you can afford and may speed up the loan application and settlement period. To find out the ins and outs of pre-approval, check out our blog Advantages of Applying for Pre-Approval

Here is a brief summary of the grants currently available to first home buyers in Tasmania:

First Home Owner Grant (FHOG) - Until 30th June 2024, the Tasmania Government is offering a FHOG of up to $30,000 to first home buyers purchase a block to construct a home or purchase a brand-new home. Existing homes are not eligible for this grant.

First Home Guarantee - the First Home Guarantee was introduced by the Federal Government in 2020. It allows first home buyers to obtain a home loan with as little as a 5% deposit. The remaining 15% is guaranteed by the government and eliminates the need to pay Lender Mortgage Insurance (LMI) costs.

Regional Home Guarantee - operates under the same principles as the First Home Guarantee but is available to first home buyers in regional areas.

MyHome Shared Equity Program - This program helps first home buyers get into a home sooner by reducing the deposit you will need. Unlike the other grants and guarantees, you will share the cost of buying your home with Homes Tasmania. This means that they will maintain an interest in your property until you can afford to refinance and pay out their share or you sell the home.

First Home Buyers Stamp Duty Concession - First home buyers may be eligible for a 50% concession on the cost of their stamp duty depending on the purchase price of the home.

All of the above grants and concessions are subject to terms and conditions. Check out our blog xxxxxxxxxx to find out more.

Buying a home is starting to become beyond the reach of many first home buyers and more and more parents are stepping in to help. Parents can choose to help their children by giving them a cash gift to assist with their deposit or they may consider using the equity in their home to provide additional security to eliminate the need to pay lenders mortgage insurance (LMI).

We won't go into a lot of detail here as we have a whole page dedicated to parental guarantees as well as a great blog Get into your first home sooner with a parental guarantee! for you to check out.