So, you’re beginning your home-buying journey! While this is an exciting time, for many it can be daunting learning all of the terms and processes involved in property, especially if you are purchasing your first home.
We’ve broken down the most common terms you will come across during your experience, read on to sharpen your knowledge.
Borrowing Capacity First thing’s first, how much money can you borrow? Borrowing capacity is the amount you can borrow based on your current financial status.
Pre-Approval This indicates how much money you might be approved to borrow from your lender. This is an important step in finding out your borrowing power before you begin your home-buying journey, assisting you to keep within a budgeted amount. Pre-approval or ‘approved in principle’ is based on your income and other information that you provide to your chosen lender.
First Homeowner Grant This is a one-off grant issued by the Australian government to assist in the costs of purchasing your first home. To be eligible, your property will need to be either a new build, or a brand-new home that has never been lived in. Per state, the grant amount can change. Currently in QLD, the amount is $15,000. Now, make sure you do not think of this money as cash in hand. The First Homeowner Grant application will often be submitted by your lender of choice once you have provided the required supporting information at time of settlement. Once approved, this money will be applied straight to your home loan. Pretty neat, huh?
Conveyancer As part of your home-buying journey you will have your preferred solicitor or conveyancer assisting you with the process. Their purpose is to assist in the transferring of ownership of the land title to a new owner. They will also prepare the appropriate documentation required for settlement, communicate with lenders and provide advice where possible.
Valuation Now, there are a few steps involved in purchasing or building your new home before your finance gets approved. A valuation is required by your lender and builder to assess the market value of your property and see how that compares with the sale price.
Stamp Duty Stamp duty or ‘transfer duty’ is a state tax that is paid by the purchaser. This is calculated based on the contract price of the property at the time of settlement. Generally, this will be paid directly from the purchasers own pocket and not by the lender – so be sure to budget!
Loan Mortgage Insurance Loan Mortgage Insurance (LMI) will be applied to the purchaser’s home loan in the instance that the loan amount exceeds 80% of the property cost. The best way to avoid LMI is to either save a full 20% home deposit, plus additional cash for other fees and charges or in some instances having a guarantor can assist.
Guarantor Everyone’s circumstances are different, and some might need a little help to get over the line when it comes to buying their home. A guarantor is an immediate relative (often a parent), who agrees to provide their property as additional security in the event that the borrower defaults on their home loan.
Title The title of a property is a document that outlines details of the ownership and other particulars.
Equity This is the difference between your properties market value and what you owe on your home loan. Over time, you will naturally build up a solid amount of equity in your home which can come in handy if you’re looking at the potential of an investment property.
Conditional Finance So, you’ve finally found the home you would like to build or buy, it’s time to take the next step! Conditional finance refers to your lender agreeing to lend your loan amount based on meeting the requirements.
Unconditional Finance It’s time to celebrate! Unconditional, full or formal finance means that your lender has fully assessed your documentation, has approved your full home loan application and will lend you the money.
Settlement This is the final legal process exchanging and transferring the ownership of a property from seller to buyer following payment of the property cost.
Congratulations, you are now a home-owner!
If you have any questions about other home-buying terms or any part of the building process, just get in touch – we’re here to help!
(i) First Home Owner Grant - Queensland Government