Andrew from Vista Financial

Mortgages/Grants/Buying Property update

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    Hello

     

    I thought that I would just give an update on the state of play with Mortgages, grants and the buying process currently as things to tend to change regularly.

     

    Mortgage Deposit / Loan to Value (LVR) requirements

     

    The minimum deposit requirements at the moment range from 5% – 10%, this means that the maximum loan to value (LVR) would be 90% - 95%.

     

    As an example if a lender required a 5% deposit on a $350,000 property the loan to value would be 95% i.e $17,500 deposit (therefore mortgage amount $332,500 / property price $350,000 = 95% LVR)

     

    Different conditions apply to Temporary Residents (see below)

     

    Lenders Mortgage Insurance

     

    If someone is borrowing over 80% LVR i.e they have a deposit of less than 20% then a Lenders Mortgage Insurance (LMI) premium is payable.

     

    This is a one off insurance premium that is designed to protect the lender in the event of a default by the borrower leading to the lender having to sell the property at a price less than the outstanding loan.

     

    The premium payable is tiered based upon the overall LVR and property price.

     

    As an example of the cost of LMI, a property price of $350,000 with an LVR of 90% i.e $315,000 mortgage would incur a Lenders Mortgage Insurance premium between $4,600 - $5,800 dependent upon the lender.

     

    This fee can be paid directly from your own funds or in many cases added to the mortgage, by adding to the mortgage this is known as capitalising the LMI.

     

    There are some lenders that are in a position to offer a reduced LMI premium under certain conditions, one being that certain Medical Professionals pay no LMI up to 90% (this could save thousands!!)

     

    Costs to Buy (Stamp duty etc)

     

    When buying an established property the approximate costs to buy are around 5% of the purchase price, this includes State and Federal government fees. It is also advisable to have around $1,000 - $2,000 as a contingency. For a property of $350,000 it would be sensible to allow for around $18,000 - $19,000.

     

    Note that the State Government recently announced that off-plan apartments in certain locations will receive an exemption from stamp duty.

     

    If you are looking to build a home then stamp duty is only payable on the value of the land and not the build.

     

    SA First Home Owner Grants

     

     

    First Home Owner Grant (FHOG) – http://www.revenuesa.sa.gov.au/grants-and-concessions/first-home-owners

     

    Available for eligible first home owners to the value of $15,000 for new homes as of 15th October 2012.

     

    Please note that the grant has a property value cap of $575,000.

     

    FHOG for established homes ceased on 30 June 2014!

     

    Temporary Residents

     

    Temporary residents are allowed to buy property and are able to obtain mortgages to do so however there are usually some conditions.

     

     

    Foreign Investment Review Board (FIRB) approval - http://www.firb.gov.au/content/real_estate/residential.asp

     

    It is a requirement to obtain FIRB approval prior to purchasing a property. If the property is to be used as your main residence then there are generally no issues with the type of property purchased i.e new or established.

     

    FIRB approval for temp residents buying a home is generally a formality but does have to be obtained.

     

     

    Mortgages generally restricted to 80%

     

    Generally temporary residents are restricted to borrowing a maximum of 80% LVR meaning a deposit of at least 20% is required.

     

    The reason behind this is due to the Lenders Mortgage Insurance companies classing temporary residents as non-residents and their reluctance or an inability to insure them.

     

    Recently 3 Banks have announced that they will look to lend certain temporary residents up to 90% inclusive of LMI, this is quite a positive step for temporary residents.

    Edited by Andrew from Vista Financial
    Updating changes to Grants/Policies

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    In certain cases where people are looking to buy but have limited savings it may be possible to borrow essentially 100% of the property value (based on $400,000).

     

    This would only be applicabe to permanent residents who are in a strong position in terms of employment and have strong servicing power.

     

     

    Generally when buying property in SA the minimum required for someone to input from their own funds all up is around 10% (less the FHOG if applicable).

     

    This is based on using a lender that allows a 5% deposit (and the ability to add on Lenders Mortgage Insurance, explained above) added with costs to buy (stamp duty etc) of approximately 5% = 10%.

     

    However for some people where that equity is not available for one reason and another and their desire to buy is very strong there may be an option of only requiring 5% of own funds.

     

    The way it would work is that the 5% would be the mortgage deposit and a mortgage of 95% (plus the ability to add on Lenders Mortgage Insurance) could be applied for along with the ability to borrow a further $20,000 (5% of $400,000) for costs i.e stamp duty etc.

     

    Therefore essentially borrowing 100% of purchase price.

     

    To note the 5% deposit must be classed as genuine savings which means that these savings must have been held over at least a 3 month period and as mentioned the applicants must have a very strong employment track record and employment income.

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    Hi we would love to buy a house in Australia but we haven't sold our uk house so our funds are tight. Could you give me some idea of the sort of deposit required and could we class the government funds as part of our deposit. I have been reading that at the moment for a build your own home you are looking at $23 000 is this right.

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    Hi we would love to buy a house in Australia but we haven't sold our uk house so our funds are tight. Could you give me some idea of the sort of deposit required and could we class the government funds as part of our deposit. I have been reading that at the moment for a build your own home you are looking at $23 000 is this right.

     

     

    Hi Sharon

     

    Yes there are potentially up to $23,500 in grants available for new builds or newly built homes.

     

    Generally at least a 5% deposit and evidence of that 5% in the Bank is required to satisfy lender requrements.

     

    As the grants are not paid out until the build starts then funds to cover the 5% deposit in addition to the costs to buy the land would be required.

     

    It may be possible in some cases to have money from the grants financed up front but there are lots of if's and but's involved with this.

     

    Also having a continguency for a build is wise as there could be things along the way that crop up where extra funds may be required.

     

    Regards

     

     

    Andy

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    Hi Andrew,

     

    Interesting post however couple of questions...

     

    1, new build property is what? Off plan? Built and first owner or less than 1 year old?

    2, do developers put a premium on new builds like in UK? Obviously if yes then this eats into any grant.

    3, how does the mortgage payment work? Stage payments to the developer?

    4, is this grant an option for self builds?

     

    S

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    Hi Andrew,

     

    Interesting post however couple of questions...

     

    1, new build property is what? Off plan? Built and first owner or less than 1 year old?

    2, do developers put a premium on new builds like in UK? Obviously if yes then this eats into any grant.

    3, how does the mortgage payment work? Stage payments to the developer?

    4, is this grant an option for self builds?

     

    S

     

    Hi S

     

    Thanks.

     

    1) So newly built, no one else lived in it, off plan etc etc

     

    2) I would say there is definitely a premium on a new build however if someone is financing the purchase (and this is really what most of these new grants are aimed first home buyers so very likely to be financing) then the premium is not hurting out of pocket as such. Also I suppose all the advantages that go with newly built i.e no wear and tear to the house etc

     

    3) Yes, stage payments are agreed in the contract to build and paid by the lender to the builder upon certain milestones i.e slab, frame etc

     

    4) I cannot see why not although it can prove difficult to obtain finance for self build.

     

    Regards

     

    Andy

    Edited by Andrew from Vista Financial

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    News out that the Housing Construction Grant is to be extended until the end of the year.

     

    This is the extra $8,500 grant for anyone not just first home buyers who is buying or building a new home whether as an investment or owner occupied. See first post regarding house values.

     

    See also here: http://www.adelaidenow.com.au/news/south-australia/new-home-grants-to-be-extended-until-the-end-of-the-year/story-e6frea83-1226654814086

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    Guest Mrs Bon Jovi
    I have just updated the first post to reflect the end of te Housing Construction Grant (HCG) as of December 2013 and also to clarify the end of the First Home Owner Grant (FHOG) for established homes on June 30 2014 currently $5,000.

     

     

    Regards

     

     

    Andy

     

    Hi Andy,

     

    The FHOG being abolished on 30th June - would you have to have completed on the sale by then or does just the signing of contracts count?

     

    Cheers,

    Wendy

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    Hi Andy,

     

    The FHOG being abolished on 30th June - would you have to have completed on the sale by then or does just the signing of contracts count?

     

    Cheers,

    Wendy

     

    Hi Wendy

     

    It is relevant in relation to the date that the contract is entered into.

     

     

    Regards

     

    Andy

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