Buying your first home in Frankston represents a significant milestone, but the journey begins well before you start viewing properties. The foundation of successful homeownership lies in developing a solid savings strategy that aligns with your financial situation and borrowing capacity.
Setting your savings target
Determining how much you need to save depends on several factors, including the property price range you're considering and the loan amount you'll require. Most lenders require a deposit of at least 5-20% of the property's value. However, if your deposit is less than 20%, you'll typically need to pay lenders mortgage insurance (LMI), which protects the lender if you default on your loan.
Consider these essential costs when calculating your savings target:
• Property deposit (5-20% of purchase price)
• Stamp duty (varies by state and property value)
• Legal and conveyancing fees
• Building and pest inspections
• Loan application fees
• Moving expenses
The loan to value ratio (LVR) plays a crucial role in determining your deposit requirements and whether you'll pay LMI. A lower LVR often provides access to better interest rate discounts and more favourable loan terms.
Government assistance programs
First time home buyer schemes can significantly reduce the amount you need to save upfront. The Home Guarantee Scheme allows eligible first home buyers to purchase with a deposit as low as 5% without paying LMI. This government-backed initiative helps reduce the barrier to homeownership for many Australians.
First home owner grants (FHOG) provide additional financial support, though eligibility criteria and grant amounts vary by state. These grants can be applied directly to your deposit, reducing the cash you need to save independently.
First time home buyer programs often include:
• Reduced deposit requirements
• Stamp duty concessions or exemptions
• Shared equity arrangements
• Interest rate concessions
Developing effective savings strategies
Creating a dedicated savings plan accelerates your progress toward homeownership. Start by analysing your current spending patterns to identify areas where you can redirect funds toward your home deposit.
Consider opening a high-interest savings account specifically for your home deposit. Some banks offer special packages for first home buyers that include higher interest rates on savings accounts or reduced fees on transaction accounts.
Automatic transfers from your primary account to your home savings account ensure consistent progress. Treating your savings like a non-negotiable expense helps maintain momentum even when discretionary spending tempts you.
Understanding your borrowing capacity
While saving for your deposit, it's valuable to understand your borrowing capacity early in the process. This knowledge helps you set realistic property price targets and savings goals. Lenders assess your income, expenses, existing debts, and credit history when determining how much they're willing to lend.
Factors that influence your borrowing capacity include:
• Your gross annual income
• Regular expenses and living costs
• Existing debts and credit commitments
• Employment stability and history
• Credit score and history
Choosing the right loan structure
Understanding different loan options helps you prepare for the application process. Variable interest rate loans offer flexibility, with rates that can decrease or increase based on market conditions. Fixed interest rate loans provide certainty, locking in your repayment amount for a specified period.
Many first home buyers benefit from features like offset accounts, which can reduce the interest you pay over the life of your loan. An offset account links to your home loan, and the balance in this account reduces the loan balance on which interest is calculated.
Preparing for the application process
When you're ready to apply for a home loan, having your financial documents organised streamlines the process. Lenders typically require recent bank statements, payslips, tax returns, and proof of your saved deposit.
Getting pre-approved before you start seriously house hunting provides several advantages. Pre-approval gives you a clear understanding of your budget and demonstrates to sellers that you're a serious buyer with confirmed financing capacity.
Working with experienced professionals who have access to banks and lenders nationwide can help you explore various loan products and find packages that align with your needs. First home buyers often benefit from specialist advice about government schemes and lender-specific programs.
Making your deposit work harder
While building your savings, ensure your money is working effectively. High-interest savings accounts, term deposits, or first home saver accounts can help your deposit grow faster than standard transaction accounts.
Avoid investing your home deposit in volatile assets like shares or property, as you need certainty that funds will be available when you're ready to purchase. The property market can move quickly, and you don't want to be forced to sell investments at a loss to fund your deposit.
Starting your homeownership journey requires careful planning and disciplined saving, but the rewards of owning your own home in Frankston make the effort worthwhile. With access to home loan options from banks and lenders across Australia, professional guidance can help you navigate the various products and programs available to first home buyers.
Call one of our team or book an appointment at a time that works for you to discuss your specific situation and explore the options available for your first home purchase.
