It is one of the most important things young families have to think about. “How much will I need to purchase my first home?” I would like to say that there is a simple answer, but there are more parts to this story than just an easy dollar sum.
We have previously discussed a workaround regarding deposits for property purchases with our family pledge article. Traditionally speaking, 5-10% of the full property price is needed for a deposit if you want to secure a loan from a bank for the balance of funds required to purchase.
We also know from our LVR/LMI article that anytime the amount borrowed exceeds 80% of the property value a Lenders Mortgage Insurance cost is incurred. On top of that you have a bunch of extra costs like legal, stamp duty and building inspections which must be paid upfront. Given the high value of property and the excessive amounts of associated costs, it’s no wonder that this is such a challenge for the younger generation.
So in the traditional sense, the deposit necessary on a property is at the very least 5% of the full value of the property, plus the associated purchase costs and the LMI cost, assuming the LVR of the loan exceeds 80%. You’ll have to do a bit of research to determine the value of those associated costs, as it is dependent on the state that you live in, and the LMI cost is fairly easily calculated using an online calculator, or by talking to a broker. To put a dollar value on it, if purchasing a $500,000 property in NSW and borrowing 95% ($475,000) of the property value, the deposit amount required will be approximately $63,500.
Now to reiterate, all of the information above relating to factors which influence your deposit requirement applies to anybody purchasing property in Australia. If however you are a first home buyer, and purchasing property to live in, there is a bonus known as a FHOG that you may qualify for which you can capitalise on.
FHOG stands for First Home Owners Grant. It is a one-off, tax-free payment to first home buyers administered by the state government. The benefit goes exclusively to first home buyers who are purchasing a “new” property, defined as “a home that has not been previously occupied, has not been previously sold as a residence, or has been substantially renovated and home built to replace the demolished premises.”
FHOG is allocated to new homes only, as the government believes that the money can be used to help first home buyers, while also stimulating the economy by increasing the supply of property which translates into more work for people employed in the building and retail industries.
The amount received if eligible for the FHOG is dependent on the state where the property is being purchased. In NSW the grant is worth $15,000 however this is being lowered to $10,000 from 1/01/16. Aside from the FHOG money, as a first home buyer you may also be eligible to receive an exemption from transfer (stamp) duty. In NSW they call this “First Home – New Home Scheme” and it’s worth a considerable amount of money.
You can receive a full exemption if purchasing a home priced under $550,000 and a concession if purchasing between $550,000 and $650,000. If purchasing vacant land to build your first home, a full exemption of transfer duty is available for land values up to $350,000 and concessions are available for values between $350,000 and $450,000.
Now we’re not necessarily saying that a new property is the best way to go for a first home buyer as there are a lot more factors to consider. There are however some obvious advantages when it comes to deposit requirements if purchasing a new property for your first home and you’re eligible for both the FHOG and exemption from stamp duty.
If you want to calculate how long it will take to achieve your saving target, visit the calculator below!