Is now the time to buy a first home?

Here are some reasons first home buyers are hesitating to buy a house:

  • Demand for property from home buyers and property investors is high. There is so much competition in the market.
  • Recent figures indicate that investors are making a return to the property market. Australian Bureau of Statistics (ABS) data shows that in April 2021, investor loans increased by 2.1%, compared with a decline of 1.9% for first home buyer loans.
  • Since the end of May 2021, banks have been increasing their fixed interest rates, and rates are tipped to increase in the long run. The ending of the RBA’s Term Funding Facility (TFF) is not the only reason rates are increasing.
  • Home buyers are in bidding wars at auctions, and properties frequently sell above their reserve price.
  • People think they have not saved up enough for a deposit.

Why Should You Buy A House Now?

The decision to buy a home should not be based only on how the market is performing.

You should also look at your circumstances.

If you’re in doubt about whether this is the time to buy a home or get a home loan, answer these questions:

Is My Job And Income Stable?

You should be earning a regular income and have a stable job to ensure you’re financially secure before you buy a home.

Lenders favour borrowers who have had a steady income for a few years and have a consistent employment history.

If the pandemic has caused some fluctuations in your employment, we know lenders who can accept your income from a new job, freelance work or casual employment.

Even if you’re self-employed, low-doc home loan options are available.

Is My Debt-to-Income Ratio Low Enough?

Your debt-to-income (DTI) ratio helps lenders determine whether you can afford the repayments on your home loan without getting into financial hardship.

It is your total debts and liabilities divided by your gross income (before tax).

The lower your DTI ratio the better, although what is acceptable varies by lender.

Lenders also look at your living expenses to determine whether you should get a home loan.

Try to lower your debt and cut down on unnecessary expenses before applying for a home loan to improve your chances of approval.

Do I Have At Least A 5% Deposit Saved?

You must have enough savings to cover the upfront costs of buying a home.

If your deposit is less than 20%, meaning you’re borrowing more than 80% of the property value, your costs will usually include Lenders Mortgage Insurance (LMI).

Fortunately, there are ways you can borrow more than 80% and avoid LMI.

Is My Credit Score High Enough?

Your credit score is a gauge lenders use to determine whether you can repay a home loan on time.

Each Credit Reporting Bureau (CRB) has its scores, ranging from below average to excellent. The higher the credit score, the better your chances of approval.

Depending on CRB, credit scores range from 299 to 1200.

Credit Bureau Excellent Very Good Good Fair Below Average
Equifax 833-1200 726-832 622-725 510-621 0-509
Experian 800-1000 700-799 625-699 550-621 0-549
Illion 800-1000 700-799 500-699 300-499 0-299

Source: Equifax, Experian, Illion

It’s best to check your credit score and credit report before you apply for a home loan.

Is your credit score too low? We know lenders that can help if your credit score is fair or below average; however, these loans will have a higher interest rate.

Can My Parents Help Me?

If your parents own property in Australia, they can be guarantors for your home loan. With a guarantor home loan, you can borrow more than 100% of the property value without paying any LMI. You don’t need to save for a deposit.

You can also use a gifted deposit from your parents as a deposit for your home.

Am I Eligible For Government Grants And Schemes?

To encourage first home buyers, the government has various nationwide and statewide grants and schemes to help you.

Some states and territories provide first home buyers with a grant between $10,000 and $20,000. The amount varies based on the state and certain property price thresholds.

Stamp duty concessions and exemptions are also available for first home buyers.

There are also nationwide schemes available if you’ve saved at least a 5% deposit:

  • First Home Loan Deposit Scheme: Available for first home buyers who have at least a 5% deposit. You do not have to pay LMI, even when borrowing up to 95% of the property value.
  • Family Home Guarantee Scheme: Available for single parents who have saved at least a 2% deposit. You do not have to be a first home buyer. You don’t need to pay LMI, even when borrowing up to 98% of the property value.

If you’ve answered yes to most of the questions above, you could get approved for a home loan and move into your home soon.

Is it the right time to buy property?

Waiting for prices to fall or the property market to cool down could take a while (or never happen!), and it could feel like it’s never the right time to buy a house.

But you have to be ready to grab the opportunity once you find your dream home. The best time is what makes sense for your situation.

You’re not in this alone.

Get in touch with the team at Cornerstone Home Loans and we can walk you through your options.