The cash-strapped first home buyers
Our hypothetical first home buyers Sarah and Ted are in their late 20s and currently renting. They've squirrelled away their money for four years and they've saved up $100,000, but because they live in Sydney, this isn't a very big deposit.
The best home loan for this young couple will ideally have the following:
- Has a low interest rate. They cannot afford massive repayments.
- Is a low deposit loan. They probably haven't saved a 20% deposit, so they'll need a loan with a maximum insured LVR of 90% or 95%.
- Has a guarantor option. Alternatively, Sarah or Tom's parents may be willing to guarantee a portion of their deposit, so a loan that allows for guarantors is a great option.
With these criteria, Sarah and Ted find a low rate loan with a high LVR. They ask their lender if it accepts guarantors, which it does. Sarah's parents guarantee 15%, so they only need a 5% deposit and they can avoid paying lenders mortgage insurance. The loan they choose does come with a hefty application fee, but they decide it's worth paying because everything else about the loan is perfect for them.
Although the idea of saving a big deposit may be intimidating, the First Home Buyers Deposit Scheme means you only need to save a 5% deposit to get your foot on the property ladder.
And as David Smith from Aussie says, with low interest rates on offer and a number of other state and federal government incentives available, this could be the ideal time to get into the market.
"First home buyers could be paying less in mortgage repayments than you would in rent in the same suburb, according to Aussie's Buy vs Rent 2020 Report released in early November 2020," Smith says.