WHY FIRST HOME BUYERS NEED A MORTGAGE BROKER
Start Your Journey As A First Home Buyer
“Do I need a mortgage broker when buying a house? What is the role of a mortgage broker in Australia? Why first home buyers need a mortgage broker?”
I hear people asking these questions every now and then.
So for this podcast, I’m going to discuss the role of a mortgage broker in the home buying process.
Transcript of: The Role of a Mortgage Broker in the First Home Buyer Process
Hey guys, today we’re gonna get into mortgage brokers and why they’re important for First Home Buyers in the process of buying their first home. Before we get into that we’ve got some big news on the FHLDS! – Que the intro.
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 Loan Deposit Scheme
Okay, so the FHLDS just had some big announcements. For the last 20 years, getting first home buyers into the market has been seen as a priority for federal and state governments.
In the recent budget update, the federal government have provided more help to first homebuyers. The major news is that they’ve extended the FHLDS to 35,000 spots from July 1st. Previously with this scheme, the government only released 10,000 spots at a time, which made it really has the potential buyers to figure out how much they needed to save to get into their first home.
If you haven’t listened to previous episodes, the FHLDS can get you into the market with only a 5% deposit, it effectively means you’re not required to save for mortgage insurance, which is generally another three or 4%.
This is a huge difference, it would take some people years to save up that extra amount. Add it to this, they’ve also announced the Regional Home Guarantee scheme. It always takes me a little bit of concentration to sail these games because there’s I don’t know there’s like seven or eight of them now. So the Regional Home Guarantee scheme, it provides another 10,000 spots from October one, you probably don’t need to know too much about this one as most potential homebuyers will just fall under the FHLDS anyway.
Basically, the new scheme allows people to buy a house and land in regional areas with only a 5% deposit. There are however, a couple of differences.
Firstly, it’s open to permanent residents. So the FHLDS is made for citizens only. It’s one of those things that adds complexity to figuring out who qualifies for all these different grants and schemes. Some allow permanent residents like the First Home Owner Grant and this new Regional Home Guarantee Scheme, and some of them don’t like the FHLDS. This is why using a mortgage broker is important. We’ll get into that in a minute.
Secondly, there’s no requirement for you to be a first home buyer for this Regional Home Guarantee scheme. This will come in handy for people that may have owned previously, and they had to sell due to life circumstances and have since struggled to save for a deposit, they may have kids or they may be renting, it may just be hard to get back into the market.
The takeaway you need to know is that basically for the last 20 years, there’s been government support for first home buyers and there’s always been something new that’s being wheeled out at the time. This is an important thing for me to communicate for first home buyers because the market constantly moves up over time. And it can quite often leave people kind of a bit overwhelmed with the situation and feeling like they may not get their chance to get into the market.
Rest assured there’s always something in the making from either federal or state government to help out first home buyers. So to figure out how to access these schemes, your best to talk with an experienced mortgage broker. And that is the basis of today’s topic.
THE ROLE OF A MORTGAGE BROKER IN HOME BUYING PROCESS
What role does a mortgage broker play in the first home buyer journey?
What I’m going to do is discuss three crucial factors the mortgage broker plays in getting a first home buyer into their first home. Before we talk about I want to talk about the main myth about mortgage brokers. And that is that the mortgage broker is there to get you the cheapest rate.
I’d first like to say that cheap can quite often be nasty. For example, I know a reputable lender that’s offering a very cheap rate right now. The only problem here is that they’re taking 20 business days for a home loan application to sit in queue before they pick up the application and start assessing it.
For many buyers their property purchase can fall through in this amount of time. So I guess from a brokers point of view, the question is what’s the point of a cheaper rate if your home loan application is going to get declined?
From my experience, a mortgage broker that’s telling you that they’ll get you the cheapest rate without really digging deep into your situation is probably just trying to get you as a customer without thinking about what’s actually best for you. If you want the cheapest rate, you don’t need a mortgage broker, you can jump on Google and find some dirt-cheap advertised rates, but good luck getting it approved.
So now that I’ve got that out of the way, let’s talk about the three crucial factors a mortgage broker plays in the first home buyer journey.
1. Mortgage Brokers help first home buyers understand their situation
So the first factor is they can and understand your situation. Now this sounds pretty basic, but it’s not because finance is complicated.
A good mortgage broker will need to understand everything upfront. I’ve seen dodgy operators promised first homebuyers everything. Yet when the rubber hits the road, the loan gets declined because they didn’t do the work up front.
Actually, I got a text from a stressed-out buyer who’s just gone through this very same experience. Now his family have been left in the lurch. And now they need to get a home loan approved in two weeks or the contract falls through and they lose the house.
The easiest way to avoid a situation like this is to find a good mortgage broker who will go over everything.
What do I mean by this? I’ll explain my process to give you some sort of idea. I run a mortgage broking firm, so I’m qualified to answer this question. What I do is get all the documentation from the first home buyer upfront. So that includes payslips, your myGov income summaries, bank statements, your credit files.
Basically, I’m looking at 90% of what any bank is going to look at to assess you for a loan. And therefore, I’ve got a very good idea of what you can and can’t do. By doing this. It also allows me to identify any orange or red flags. Now this is important, because I’ll give you example off the top of my head. Let’s say the first home buyer tells me they want to buy for $700,000.
I do the number crunching if income looks good, they have 4% deposit, and if they would qualify for the First Home Loan Deposit scheme. I do everything. Based on the information they’ve given me over the phone, it looks like they’re qualified for the First Home Loan Deposit scheme, everything looks good.
The problem here is if I don’t do all the number crunching up front, I might miss the fact that they’ve got to pay some stamp duty for a purchase of $700,000 on an existing property. In Victoria as first home buyers, off the top my head, I reckon that’s probably about 15 grand.
A lot of brokers wouldn’t actually do something basic, like do the number crunching on what the buyer wants to achieve. So you can see here, if we get a situation and I go “yeah yeah yeah, she’s right”, go off and buy something worth $700,000, and then you go by and you figure it out, you need another $15,000.
That can be so soul-destroying, because all of that effort and emotional investment has gone into something that has now fallen through it…it is soul destroying. For a lot of people in this situation, I would identify this orange flag up front. And I would chat with them to see if they can get the extra money now or if they would need to continue saving, maybe they can buy for $600,000 instead, and get into the market now.
In this situation, they needed to continue saving, then I’d work with them to basically figure out a timeline to figure out when they’re getting close to that savings goal and that way I can get moving with pre-approval applications ahead of time, which is going to get them into the market as soon as possible.
This is just one example, but makes a massive difference to the first home buyer experience. And with something complicated like home loans, there are many, many things that can happen that if you do the work upfront, a good mortgage broker will do all the research, and they’ll be able to figure out everything. Basically put a plan together for you so that you get into your first home in the least stressful way.
2. Mortgage Brokers help you figure out what grants and schemes you can access
The second crucial factor mortgage broker will play in the first home buyer journey is they will help you figure out what grants and schemes you can access.
About 35% of the people will go directly to the bank for their home loans. I’ll give you an example. There are only particular lenders that have access to the First Home Loan deposit scheme. If you went directly to one of these banks, they just would not know that this is available to you because they don’t offer it. That could mean that you’re spending a small fortune in additional fees and rates. You didn’t really have to.
You need a good broker because understanding the myriad of incentives is not easy. You have the FHOG, the FHLDS, the New Home Guarantee, First Time Super Saver, The Homebuyer Fund, the New Regional Home Guarantee, which I talked about before.
The worst part is that you may be none the wiser if you get told the wrong information here so it’s extremely important you’re dealing with someone in the know, and mortgage brokers are the people in the know when it comes to this stuff.
Just imagine if you got told you needed to save another $20,000 because you didn’t know you could access the First Home Loan Deposit Scheme for example? Some people give up here because they get dismayed because by the time it would take them to save up that extra $20,000, they’re thinking more prices might have gone up another $100,000 which means I’ll have to keep chasing and keep saving. And therefore I’ll just be constantly chasing my tail the whole time.
I literally see this happen on a regular basis. People just give up.
3. A good mortgage broker will help you execute this complicated process
The third most crucial factor of having a mortgage broker, in the first home buyer process is that a good mortgage broker will help you execute, it’s one thing to know what you can do, but to actually get it done and executed and get you into your first home is another thing.
Like I said before, this is an extremely complicated process, you’re doing something with you usually a half a million to a million-dollar transaction, and there’s a lot of different parties involved.
A good mortgage brokers simply doesn’t stop at getting the home loan approved, although that is a massive milestone in the first home buyer journey – they work with you to get the loan settled and see you move in.
They’ll even prevent you from paying loyalty tax to the banks in the future. But I’ll touch on that in a bit. There’s a bit of stuff to do, which isn’t usually too much work, but it can be stressful for the buyer. If they don’t have the clue as to what the process is. And the smallest thing can actually seem like a major problem, though a good mortgage broker will basically hold your hand the whole way through. A mortgage broker will ensure all the paperwork is completed. That is from applying for grants and schemes, getting the pre approval application into the lender, dealing with the lender to get the loan approved, getting all your loan contract signed. Well, they basically do everything that’s required to get you into your own home.
What is "Loyalty Tax"?
Okay, back to the loyalty tax. What generally happens after few years of you being with your bank is they eventually shuffle your interest rate up. So it’s not really competitive anymore. We call this a loyalty tax because some clients believe their loyalty is worth something and the banks reward them by actually just charging them higher rates of interest. And by regularly I mean, on a weekly basis, I’ll save three people $3,000 a year in interest just by keeping the banks in line and making sure they’ve got a cheaper home loan rate.
So that’s the point I’m getting on, after you’ve actually bought the house is you don’t just use a broker to get the home loan and then see you later. A good mortgage broker is going to help you out for years ahead, continually making sure you’re not paying too much on your loan, which will ensure that you can pay your home loan down as soon as possible.
The Wrap Up
That’s the three crucial reasons why first home buyers need a mortgage broker.
Before I let you go, I just want to put it out there. If you need help to get into the market, you need to figure out how much you can borrow or if your deposits enough, (really any question, there’s nothing too big or too small), we’ll help you with anything, please just get in touch. Till next time. Cheers!
Thanks for listening to today’s episode of the First Home Owner Concierge Podcast. If you’ve got any questions or you’d like to get into your own home, or you just want to stalk me online, you can search Will Bell Mortgage Broker on either Google or Facebook or Instagram.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.