It takes six years and eight months for Sydney first home buyers to save for a 20% deposit on an entry-priced house in the city, new research from Domain reveals.
Buying an entry-priced apartment instead, cuts this time by more than two years.
However, Domain’s ‘First-Home Buyer Report 2024’ states that first home buyers using the federal government’s Help to Buy (HTB) scheme can save for a deposit in less than a year.
So while Sydney is still the capital city with the longest time to save an entry-priced house and unit deposit, there are ways first home buyers can afford to purchase properties sooner – you just need to understand your options. A reputable mortgage broker in Sydney can help with this.
All You Need to Know About Home Loans in Australia
The basics
- Who can apply
Home loans can be granted to Australian citizens or permanent residents – or foreigners in de facto relationships or marriages with citizens or permanent residents – over the age of 18.
- Why a deposit is important
The size of your deposit is important. It will not only determine whether your application will be approved, but how much you will qualify for. Most lenders require 20% but there are provisions that allow for lower deposits. In most cases you would need to then pay lender’s mortgage insurance.
- How do interest rates impact home loan repayments?
Your monthly repayment amount and the total you will owe your lender over the full loan term will be dictated by the interest rate. The higher the rate, the more you will pay.
Your credit score
A strong credit score is crucial to not only obtain loan approval but secure more favourable interest rates. Paying bills on time and managing credit responsibly can improve your creditworthiness.
Types of homes loans
There are a few types of home loans available to borrowers. Each loan type will impact your repayments differently.
Interest rates
- Variable-rate loans: These home loans have interest rates that can fluctuate with market changes so your repayments won’t always be the same. While variable-rate loans can offer flexibility they are affected by economic conditions.
- Fixed-rate loans: The interest rate on these home loans remains the same for a period ranging from one to 10 years. As your repayments will not change during the fixed-rate term, you will have stability and predictability.
- Split loans: This loan has been split into two separate portions, one of which will have a fixed interest rate and the other a variable rate.
Repayments
- Interest-only loans: Borrowers pay only the interest for a set period.
- Principal-and-interest loans: Payments cover both the interest and a portion of the principal. This is the most common loan type in Australia.
Lender’s mortgage insurance (LMI)
If you want to buy a home but don’t have a 20% deposit, you may be required to pay lender’s mortgage insurance.
LMI is a once-off, upfront premium that protects lenders against the risk of not recovering the outstanding loan balance should a borrower be unable to meet their loan repayments and the property is sold for less than what they still owe.
Refinance home loans in Sydney
Mortgage refinance can unlock a number of benefits such as lower interest rates, access to equity and better home loan terms and features. The process for refinancing homes generally follows the same process as applying for a new loan.
Essential documents
The documents you need to submit with your home loan application will depend on your individual circumstances but, generally, you will need:
- Proof of identity
- Proof of income
- Proof of your financial situation
If you are refinancing your loan, you will also need to provide:
- The loan statements on the property you are refinancing
- Details of the home to be refinanced – such as the number of bedrooms, bathrooms, garages and other inclusions
Additional costs
There are several additional upfront costs involved with home loans; stamp duty, conveyancing fees, valuation fees and application fees are just a few.
Home loan comparisons
Every mortgage lender uses their own methods to calculate the interest rate they are willing to offer so it is advisable to compare interest rates, fees and features from different lenders. Looking at lenders’ comparison rates will give you a more accurate idea of the total cost of the loan and help you better compare offers.
Home loan pre-approval
There are many good reasons to apply for pre-approval before searching for a property. Pre-approval is a conditional agreement from a lender to loan you a specific amount of money to buy a property. It gives you a budget and shows sellers that you are a serious buyer.
Government assistance
The Australian federal government offers a Home Guarantee Scheme (HGS) to help eligible first home buyers purchase a home sooner through grants and concessions.
There are three types of guarantees: First Home Guarantee, Regional First Home Buyer Guarantee and Family Home Guarantee (which is also open to people who aren’t first home buyers). Each scheme offers a limited number of places each financial year.
Understanding home loans in Sydney
Buying a property does not start with a home loan application – and applying for a home loan does not only require you to submit a pile of documents. Understanding your financial situation and goals, the requirements of lenders and the various factors that impact home loans is critical to making informed decisions when taking out a mortgage in Sydney.
Loan Station is an experienced and respected finance broker in Sydney that can help you navigate the home loan application process and try to uncover the best offers for your needs – including the best refinance home loans in Sydney. Contact us today for personalised mortgage advice and guidance.
