Getting started in property

Getting started in property

DIANA: Welcome to Q&AMP: Buying a home, where we'll look at some key elements around purchasing your first property.

I’m Diana Mousina, a senior economist at AMP Capital. Buying a property can be an exciting time but we also understand that it can be very daunting, especially if you're buying your first property.

A property is one of the biggest purchases that you’re likely to make in your lifetime, so it’s important to do your research. In this video, we’re going to tackle some of the most pressing questions about property and finance.

Today I’m joined by two of my colleagues, Aarti Joshi, a senior home loan specialist, and Nick Stavroulakis, a senior personal banker with AMP. We’ll be discussing some of the details around purchasing your first home, including how the process works and some of the terms that you’re likely to hear along the way.

Nick, the one thing many people want to know is how much can they borrow? What’s a good way to approach the financial side of buying a property? Should they look for the property first, or line up their finance?

NICK: Thanks, Diana. If you’re looking at buying a home, it’s really important to set a realistic budget to make sure you can afford the monthly repayments.

There are various factors that contribute to how much you can borrow such as income, family situation, number of dependents and existing debts, among others. There are some great online calculators that can help with your numbers.

Also remember that you’ll need a minimum of 10 to 20% for the deposit in most cases, plus any upfront costs that come with buying a property.

After you’ve worked out these things, you can use an online calculator to see exactly how much you can borrow.

DIANA: Can you give us an idea what some of these upfront costs might be?

NICK: An important one is stamp duty, which is a government tax on property purchases. The amount of stamp duty varies depending on the purchase price of the property and the state where the property is located. So it’s really important you research it properly using a stamp duty calculator.

Other upfront costs may include fees for your home loan application. Legal fees and conveyancing fees are also applicable to transfer the property over into your name. There are also building and pest reports and, if you’re looking at buying an apartment, a strata report will also come in very handy.

DIANA: What about costs after the property settlement?

NICK: As a property owner, you’ll have a number of ongoing costs such as council rates, strata levies for apartments and utility costs such as gas, water and electricity. You should also consider building and contents insurance to protect you from unexpected events such as damage, accidents or theft.

DIANA: So Aarti, when is the best time for a prospective buyer to speak to their lender or mortgage broker?

AARTI: If you have looked at several properties in your budget range and you are ready for house hunting for the property, it is helpful to get a pre-approval from your lender.

This means that the lender has indicated in principle how much they are willing to lend you. This isn’t a compulsory step for the borrower, but it does give you a maximum budget to work on while looking for the properties.

It’s important to remember that a pre-approval will generally expire within three months. It’s not an approval and there’s no guarantee that your loan application will be approved, if there is any change in your circumstances.

DIANA: The property market has its own jargon and one of the terms that frequently comes up is LVR. Can you explain what this means?

AARTI: LVR stands for ‘loan to value ratio’. It refers to the amount you’re borrowing in relation to the property value you’re purchasing.

LVR is calculated by dividing the loan amount by the purchase price, and then multiplying it by 100. So if your home is valued at $500,000 and you’re borrowing $400,000, it means that your loan to value ratio is 80%.

DIANA: That makes sense. Another common term is LMI. Can you explain what that means?

AARTI: Depending on the type of your loan and the size of your deposit, you may need to pay the mortgage insurance. This insurance protects the lender in case you make a default on the loan. So LMI refers to lender’s mortgage insurance.

It’s important to remember that LMI is in place to insure your lender and not you, and the lender will decide whether you'll need to pay the LMI or not. Many lenders will require LMI if your deposit is less than 20% of the property value.

DIANA: Nick, on the topic of lenders, what should people keep in mind when they’re searching for the right one?

NICK: Of course you want a competitive interest rate and loan features that suit your needs. It’s also important that you feel comfortable in the process and that you have a lender you can communicate with.

When you’re looking at lenders, ask them if you’ll have one person who can assist you with all your enquiries, from that initial discussion all the way through to property settlement, rather than being passed on from department to department.

DIANA: Thanks, Aarti and Nick we’ve covered some great topics for home buyers.

Here’s a quick recap if you’re house hunting:

Use an online calculator to work out how much you could borrow and if you’re still unsure then speak to your lender.

A pre-approval isn’t compulsory, but it can give you a good idea of the maximum purchase amount that you can work with.

Don’t forget other costs associated with purchasing a property, such as stamp duty and legal fees.

Learning terms like LVR and LMI can make you feel more confident when you’re speaking to lenders.

Visit amp.com.au/homeloans for handy calculators and more information.

Please remember this video hasn't taken your circumstances into account. It's important to consider your circumstances before deciding what's right for you.