First Home Buyers

To improve your capacity to borrow towards your first home purchase it is helpful to minimize your liabilities.  That means, avoid car loans, personal loans and credit cards.  Having liabilities such as these, even demonstrating a perfect repayment history, will reduce your capacity to borrow as the lender will consider that all of these facilities are in place at their initial full limit despite the actual balance.  Also, repayments towards and reducing any HECs/HELP debt will also help.

For those looking to borrow over 80% of the value of their new property (loan to value ratio, LVR) lenders mortgage insurance (LMI) will apply.  LMI is payable on all loans but the bank will pay it for you if your loan amount is less than 80% LVR.  Lenders mortgage insurance can be significant.  It differs lender to lender increasing as the LVR increases generally up to 95% LVR.  The LMI can often be added to the loan (capitalised) generally up to 95% with some lenders though up to 95% inclusive of LMI is more common.  An exception to this is when a family pledge for additional security is supplied by a direct family member. 

Family Pledge guarantors can provide their own property title to provide security for funds borrowed over 80% therefore removing the requirement for payment of lenders mortgage insurance.  The ideal structure of the loan is to establish two splits; one secured by the property being purchased at 80% LVR and the second at 20% LVR plus costs secured by the parent or family guarantors’ property.  The purchaser will make loan repayment for both loans and ideally pay out the family pledge loan portion as soon as possible so the title can be returned to the family member who pledged it.

First home buyers borrowing more than 80% LVR may also required to demonstrate their ability to save by supplying evidence of at least 5% “genuine savings”.  This is achieved by supplying a bank statement in their name with funds in the account for at least 3 months.  Some lenders will also accept a statement from a licenced real estate agency demonstrating regular rental payments.