FIRST HOME BUYER CASE STUDY
Make 2022 The Year You Start Your Journey As A First Home Buyer
Today we’re going to focus on a case study from a couple of clients that I’ve been working with lately. We’re going to go into their situation before they’ve come to see me. We’re going to talk about the challenges that they’ve faced throughout the process, and we’re going to talk about where they are at now.
Hello and welcome to the First Home Owner Concierge Podcast where our sole target is to get you into your first home. Now onto today’s topic!
First Home Buyers: Assessment
I’m going to use Peggy and Matt, that’s not their real name, I’ve change it for privacy. Peggy and Matt were referred to me by a relative. Basically the original customer referred someone, and then referred someone else, then referred someone else. Then Peggy and Matt talked to me. That’s important because they knew I’ve helped other people to get into their first home previously.
So I got a call from them and the conversation go something along the lines of me getting kind of a broader review of where they’re at to see if I can actually help them. So it’s like a 10 to 15 minute call.
So I’m telling to Peggy, I could really see some trepidation as currently they are living at Melbourne. Where they’re living, they could only really buy a unit, so I’m kind of tossing up, do we just stay where we are, where we could probably only buy a two-bedroom unit, or do we live in the country.
Obviously, the pros of Melbourne is that they’re living already where they’re living or they’re buying already where they’re living, but they can only afford a unit. Whereas in the country they’ve got a house they can afford a lot more land and if they’re going to have a family in the future that’s going to be suitable as oppose to a unit.
Their current position is they’re both working full time, saved up a 5%, no debts apart from HELP debt which is a university or is a study debt. So, pretty good financial position, pretty typical financial position for first home buyers to be honest.
Consulting with a Good Mortgage Broker
Basically, they didn’t know what to do, they got off the phone with me and actually what happened is after that initial call, I’ve got them to send me the documentation so basically whatever’s banks we’re going to look at, payslips, bank statements, their credit file that sort of thing.
Anyway, they turned around and delayed, it turned out they can do something but they’re just weren’t sure on what they should do.
And lo and behold, they come back a few months later and said, “look we have decided paying rent is not going to work for us, anyway we got some uncertainty with the market but at the same time there are also some uncertainty with what’s going to happen with rent.” So, they basically just said “alright, let’s just get into the market.”
Where to from there? Well, I’ve already consolidated the numbers previously, so everything is pretty similar, I’ve got them to send through updated documents just to make sure we’re still all good with the finance. And basically I’ve gone out to meet them to discuss what the mortgage process is so they know what they’re at for.
I’ve coached them on things like putting in offers using finance clauses, and getting building and pest inspections… kind of pretty straightforward if you’ve been doing this for a long time. I also figured out loan details, we worked on how much they could borrow, what’s their repayments are if the rates go up because the rates obviously look like they’re going to go up as well.
One thing I did work through and I quite often do this with a lot of client is show them the calculation of how far they could get ahead. This is pretty interesting actually. I did a calculation on a $550,000 loan. If they pay $100 per week extra, they pay their loan of about 6 years early.
The way I like to put that is, I measured their weekly repayments including their $100 extra a week, and it worked out to about $700 per week. So if they go $700 a week for 6 years, I think it was around $10,000… I think it was a bit over $10,000 that they can be ahead.
So what does that mean? A normal loan in 30 years under that structure, they’re paired of in 24, if they keep on paying $700 a week into their savings account, that will end $10,000 by the end of that 6 years.
That’s something worth noting with finance because quite often a lot of first home buyers just want the house and that’s cool. But what’s not cool is later on in life is you have kids, you can’t pay extra at that period of time and then lo and behold, your 60-year old and you still got quite a bit of debt. So i like to give that people lessons figure upfront.
Getting a Home Loan Approval
So anyway I confirmed the loan details with them, went on the big four banks simply because they could get access to the First Home Grant which is something as a broker I help them with, I help them deal with the application and all that sort of stuff.
The First Home Grant is a grant where they only need a 5% down and that’s it. If you want to know about the First Home Grant, I’ve done a lot of stuffs about it in the past episode so you can search back through them. It was known as First Home Loan Deposit Scheme before so just an FYI there.
Basically, we confirmed all the loan details, went on the big four banks that’s going to be more reliable and that will be offering a better rate than the smaller lenders that offer that grant. One thing to know with that grant if you’re a first home buyer is that it’s only available to particular lenders. In Victoria I think there are 10-15 lenders that I’ve got access to via that grant and there are quite a number of lenders, I mean there’s probably 50-100 lenders out there. That gives you some idea.
So if you’re going to go for the grant, you’d best go thru a mortgage broker because they’re going to know the best lenders to use for that. And then we basically get the application together so I get my team to put together a pre-approval application, the first home guarantee application, then send it to the client so that process took about a week to 2 weeks. That really depends on the lender though. Some lender can take a little bit longer than that, a week to two weeks is probably your average (for the process).
Anyway, they’ve gone and bought a property and I’ve let the conveyancer roll over the contract. When I say roll over, I mean, I just mean look at the contract and make sure nothing’s dodgy in there and make sure there’s no causes for concern. If there are, I’ll mention them.
So they’ve gone and signed the contract once they’ve got that the conveyancer is okay. I’ve got the contract; I have to order a valuation on behalf of the bank. Once the valuation is received by the assessor in the bank, we got the approval I think within a couple of days once that was sent through.
So that’s where we’re at with this deal. We got to the approval which is the most important bit because once you got the loan approval, you know you’ve got the property. Any time before that is not certain. So the bank can decide to decline the loan for any number of reasons, but yeah that’s where we are at.
They’re really happy, they’re relieved. It’s been a smooth process so far and really in terms of the remainder of the process is just a matter of signing the loan document and making sure the conveyancer tease the settlement up with them so that goes through smoothly.
That‘s it with those guys. In the future I’ll provide a few more case studies. This case study is pretty straightforward, pretty much straight down the line. Guess I just want to discuss this one because most clients go straight down the loan.
In the future, I’ll discuss some case studies where there were some challenges that were a little bit out there. But in terms of these clients straight down the line and my best suggestion would be just tea up a good conveyancer and a good mortgage broker.
I always use the analogy I should say, that buying your first home is one of those things in life where it’s like you’re climbing a mountain, and people don’t climb Everest without using sherpas. So let the broker and the conveyancer be the sherpa in this situation. Don’t try and make too many decisions, just use their advice, lean on them, you just focus on finding the right property.
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