There are a few hidden costs in buying a house that you’ll need to consider and budget for when building or purchasing a house. Find out what they are.
How Much Can I Borrow?
When it comes to working out how much you can borrow the first step is to draw up a budget. Write down your monthly income and then all your expenses. This will give you a good idea of how much you are already spending each month, and how much you have left over to potentially put towards a mortgage.
When doing a budget, you should always allow for a buffer for unexpected expenses and interest rate changes. To calculate your borrowing capacity, consider your income, expenses, any personal debt and the appropriate type of loan.
When considering a mortgage, you have to take into account the lending criteria, which can vary greatly between banks.
Common lending criteria can include:
Minimum deposit based of the loan to value ratio of the loan (LVR). LVR is the proportion of money you can borrow compared to the value of the property.
- Employment status and current income.
- Previous credit card limits and personal debts.
- Your savings history or previous repayments history for any other loans (i.e. car loan).
If you meet their criteria, the lender will be able to advise you how much you’re able to borrow from them. Then, it is up to you to work out if this is manageable with your current income and lifestyle.
How Much Deposit Do I Need?
With as little as $1,500 deposit we are able to get you into your first home with WOW Homes.
What is an Interest Rate?
A home loan interest rate is the rate at which the bank charges you interest on the loan, such as 5% per annum. Some loans feature a reduced interest rate for an introductory period, which then reverts to the standard rate.
Fixed or variable?
A fixed rate home loan means your loan repayments will be charged at the same interest rate for however long the fixed rate period is. This rate is commonly for a period of between 1 and 5 years, but longer fixed rate terms do exist.
A variable home loan start with a lower interest rate and after an agreed time, the rate fluctuates according the market index, as set by the Reserve Bank. It means the interest rates move up or down with the market.
What is a Keystart Loan?
The Housing Authority offers a range a home ownership product through its lending provider, Keystart Home Loans. Keystart is an initiative of the State Government to assist Western Australians get into affordable housing.
These loan products help eligible people to buy their own homes through low deposit loans and shared equity schemes. Specific loan assistance is available for public housing tenants, sole parents, people living with a disability and Aboriginal borrowers.
Keystart loans are available in the Perth metro area for:
- Singles earning up to $90,000
- Couples earning up to $115,000
- Families earning up to $135,000
Keystart loans are very attractive as you only require 2% deposit of the property price, of which only 1% needs to be genuine savings.
The other difference between a Keystart loan and other major banks is that they don’t require any mortgage insurance.
What is a Guarantor Home Loan?
A Guarantor Home loan is when another person (such as a parent) puts up a property they own (or have equity in) as security, allowing the borrower to borrow up to 107% of the purchase price of the home without needing a deposit.
This helps young people get into the property market sooner. Once you have paid off part of your loan or your property has increased in value, then you can apply to remove the guarantee.
What is Lenders Mortgage Insurance?
Lenders Mortgage Insurance help thousands of people each year to purchase their dream home, offering help to borrowers that don’t have a large deposit.
Depending on the lenders requirements, Lender Mortgage Insurance allows you to borrow up to 95% of the purchase price of your home, with a lower deposit than is usually required. Lenders Mortgage Insurance is added into your home loan.
Lenders Mortgage Insurance protects the lender if a borrower is unable to meet their mortgage repayments and the property has to be sold.
What is Stamp Duty?
Stamp duty is an amount of money that is charged on the purchase of land. The stamp duty is charged for legal documents to be stamped. The purchaser of the property is liable to pay the stamp duty. Depending on where you live and the value of your property these charges may differ.
As part of the WA first home buyer assistance, eligible first homebuyers who purchase new or existing dwellings under $430,000 are exempt of stamp duty. Discounted stamp duty for eligible first home buyers who purchase new or established homes between $430,001 & $530,000.
A few areas first home buyers can prepare themselves to be in the best financial position for assessment include:
- Have a stable work history, with longevity and consistency in positions.
- Savings in the bank, even if you only have a small amount of savings it’s a start!
- Clean financial / credit rating, the less debt you have the better.
- Income that is sustainable to pay a mortgage and incoming expenses.
Have an understanding of your currently income and expenses. Be prepared to cut back on some of the luxuries such as your morning coffee, those little cut backs can go a long way to savings and securing your choice of house and land package.
Be mindful that you select a package that is affordable; your Consultant, Builder and Finance Specialist should guide you along the right path to ensure you are not locked into something you cannot afford or are not happy with. Living in a home you can’t afford will place you under unnecessary stress.
This links to choosing the right builder as they will complement the entire process and guide you through the various factors and areas that could be problematic.
The cheapest isn’t always the best! Stay away from too good to be true house designs and packages. If you are looking to proceed with a builder that has lots of the nice sparkly and fancy inclusions for a cheap price, this is a red flag, have the important costs been factored into the price? This includes things like siteworks which can blow out and be a huge cost if these haven’t been included in your package price. What kind of bricks and method is being used to build your house? A cheaply built foundation will only result in headaches down the track which cannot be fixed easily or without significant financial impact.
A builder with a good reputation that is not willing to sacrifice on quality will be confident in the packages on offer when meeting with you, they will not try to over-compensate with all of the “extras”.
Building a Package
When building your house and land package it is important to consider the following factors:
Each suburb has ranked house prices within three categories (Upper Quartile, Median and Lower Quartile). Your house and land package is reviewed by Bank Valuers and either approved or declined based on the house package price (house + land = house package price).
First home buyers should be prepared to keep their house package within the median quartile bracket for the best possible chance of obtaining finance approval without delay. REIWA has a tool that can be used to source this information: https://reiwa.com.au/the-wa-market/suburb-profiles-search/
When selecting your block it is important to consider the following as this can cost you significantly in time and money:
- Will the block require planning approval? Blocks under 260sqm require planning review and approval which can take 3 months or more.
- Is the block titled? Blocks that aren’t titled by the developer will delay any work that can proceed until the titles are received.
- Is any site clearing work required? A site that hasn’t been cleared will need this to be done prior to construction commencing which could result in an additional expense.
- Does the block require retaining? Retaining if not provided by the developer or the seller will require an additional expenses and need to be arrange prior to construction commencing.
Be mindful that you select a package that is affordable; your Consultant, Builder and Finance Specialist should guide you along the right path to ensure you are not locked into something you cannot afford or are not happy with. Living in a home you can’t afford will place you under unnecessary stress. This goes back to choosing the right builder as they will complement the entire process and guide you through the various factors and areas that could be problematic.
All you need is $1,500. Start making your home ownership dream a reality. Simply fill out the form below and one of our friendly House & Land Specialists will be in touch.
Getting the right finance can influence your financial stability for years to come. So we don’t take a ‘one size fits all’ approach. Our in-house finance team will tailor a solution to meet your needs. They have a variety of options and will find the right loan for your budget.
Do I need a deposit? If I sign up and pay a deposit and my circumstances change do I get a refund?
The initial deposit covers the work done to organise the best loan for you. It also counts towards the lender’s deposit. Arranging the best loan application does take a fair amount of time, so it is non-refundable. If at first your finance isn’t approved, the deposit is honoured until we get it approved for you. WOW!
The WOW Homes goal is to find the best possible home loan for you. One that is tailored to your needs. We take care of the application process and ensure you get all government grants that you’re entitled to.
We provide settlement support and arrange all insurances. So we save you time and make it easy. To make this all possible, we work with our trusted in-house teams. Even more WOW – we don’t charge you.
Because our vision is to get as many Western Australians into their own homes, we will help you regardless of your financial situation. You might think you won’t qualify for finance, but you’ll be surprised after speaking to a WOW Homes building consultant. So give it a go!
Our in-house finance teams make the home loan process easy to understand. Forget all the jargon! Loan terms, fixed rates, stamp duty, low deposit loans, guarantor loans… we’ll help you understand it all.
Find out if you qualify!
Still got questions? We’ll let you know if you qualify. It only takes a couple of minutes so get in touch with us today!