The First Home Buyers Pocket Guide to Property Terms
Escaping the rental roundabout and buying your first home can feel a little overwhelming. It’s almost certainly the biggest financial decision you’ve ever made in your life, for one thing. For another, there are suddenly so many people to deal with, and so many new things to learn.
One thing that can help is a basic understanding the industry lingo. You will probably come into contact with almost all of these phrases during your home buying journey, so here’s a handy glossary to help.
Real estate agent
Real estate agents act as the go-between for the person selling a property and the person potentially buying it. Generally, the agent is acting for the seller and works with them to secure the best price for their property. But their role is also to ensure that you, as the buyer, have all the information in relation to the property and the buying process so that you can make an informed decision.
Legally, they are required to be fair and transparent with all parties. They may be come a very important ally throughout your buying journey.
This is what you feel when you first step into your lovely new home. It’s also the term that applies when that lovely new home increases from its original value, which is why you should view your first property as a financial asset as well as a great lifestyle choice.
Contract of sale
This is a written agreement outlining the terms and conditions for the purchase or sale of a property. The contract will contain the purchase price, length of time until settlement and any other special conditions. The contract will include a lot of small print that covers all the legalities relevant to your purchase. Your solicitor will help you through this information, explain any terms that are unclear and advise you directly of anything within the contract that is particularly important.
Within the contract, you as a buyer can also amend the cooling off period; this is very standard practice when purchasing a property. In the ACT and NSW, buyers have five days from the time they exchange on a property to change their decision. If the real estate agent and your solicitor have provided you with all the relevant and necessary information required, there should be no need for a cooling off period as you will be comfortable and confident with your purchase decision.
If you are the highest bidder at an auction, you will enter into a contract of sale as soon as the hammer falls.
This is the amount of money you have to pay when you exchange contracts to show your intent to purchase the property from the seller.
A contract generally calls for a 10% deposit, however, what is paid at the point of exchange can vary based on negotiations between the seller, the agent and the buyer.
First Home Owners Grant
Some first homebuyers get a little bit of help to buy a home in the form of a $7,000 first home buyers grant. Unfortunately the days where this applied to all first home buyers are long gone.
Currently in the ACT, the First Home Owners Grant, or FHOG, is only available for new or substantially renovated homes, not established properties. You’re eligible if you’re buying a new home or building one yourself, and you’ve never previously received an FHOG anywhere in Australia. This FHOG will end on June 30 2019, with the ACT Government replacing it with a new scheme for first home buyers.
In NSW, you could qualify for an FHOG of $10,000. Like the ACT, this grant is applicable to new homes only.
Speak to the agent or your solicitor if you have any questions regarding the FHOG and to learn if you’re eligible for it.
A lender is a bank, credit union or other financial institution that is lending you the money to buy the property. An easy gateway to reaching multiple lenders is visiting a Mortgage Broker. Dealing with a Mortgage Broker is different than dealing with a single lender, as a broker has access to multiple banks and products, providing you with objective advice and multiple options in finding a loan that works best for you.
Your broker will need a lot of documentation from you in order to submit and help gain approval on your loan. Responding to his or her requests quickly will make the whole process smoother for everyone. Remember, it takes two or three weeks from the date of application to get confirmation that your finance has been approved and you are one step closer to becoming a homeowner.
It’s important to work with someone you trust to reduce the stress and find the best home loan for your situation.
Lender’s Mortgage Insurance
If you are borrowing more than 80% of the purchase price from your lender, they will usually require you to take out lender’s mortgage insurance (LMI). The clue is in the name, here: it’s a payment that protects the lender against the possibility that you, the well-meaning borrower, will fail to make mortgage payments and the value of the home doesn’t cover what’s owing.
Speak to your broker about options, as it is possible the cost of LMI could be included in your overall home loan and paid off in the same repayments.
Okay, you probably know what a mortgage is. But did you know there are several different types?
A principal and interest loan is the most common type offered for first home buyers. Here, you make a set monthly (or fortnightly) repayment, which is divided in two. Part of the payment goes towards paying off the lump sum you borrowed, the other part is paying the interest that the bank charges on the loan. At the start of the mortgage term, most of what you pay is interest, but the ratio reverses over time.
This is by far the most common type of loan and the one you will most likely be advised to take.
An interest-only loan is more commonly utilised by investors. As the name suggests, you only pay interest on the amount owing, which therefore never decreases. While an Interest-only loan is cheaper to maintain because you’re only paying interest, the rate of interest is usually higher.
Home Buyer Concession Scheme
Conveyance duty, more likely known as stamp duty, is a Government tax you pay when purchasing property, whether that’s a home, land or commercial property. The Home Buyer Concession Scheme (HBSC) is an ACT Government initiative that aims to help people purchase a property by charging stamp duty at a concessional rate.
The rate you pay depends on a number of factors including the home’s total value, the gross income of all buyers and whether you are purchasing a new home or land. The more value a home or land has, the higher stamp duty you could pay. Check out the latest thresholds for the ACT, updated in September 2017.
Over the border in NSW, concessions are different but still aim to help first homebuyers enter the property market. Some first homebuyers could be exempt from paying stamp duty on new and existing properties valued up to $650,000.
Be sure to speak to a real estate agent or mortgage broker if you have any questions or want to know what you qualify for.
This is a word you should write on the calendar in big letters and with plenty of exclamation marks – it is the day you have been waiting for!
Settlement is when all the final payments are made to the seller, the documents exchanged, and you are registered as the new owner of the property on the title.
This is also the day you receive the keys and enter the door for the first time, officially a home owner.
And there you have it! All the terms you need to know.
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