Buying your first unit in Victoria is an exciting milestone, but understanding the home loan process can feel overwhelming. As first home buyers, you have access to various home loan options from banks and lenders across Australia, each with different features and benefits.
Understanding Your Borrowing Capacity
Before you start looking at units, it's crucial to understand how much you can borrow. Your borrowing capacity depends on several factors:
- Your income and employment status
- Your financial situation and existing debts
- Your savings for deposit and associated costs
- The loan to value ratio (LVR) you're comfortable with
Lenders will assess your bank statements and financial documents during the application process to determine your borrowing capacity. Getting pre-approved for a home loan gives you confidence when making offers and shows sellers you're serious about buying a home.
Home Loan Options for Unit Purchases
When applying for a home loan to purchase a unit, you'll encounter various loan products:
Variable Interest Rate Loans: These offer flexibility with variable home loan rates that can change over time. You may benefit from interest rate discounts and features like offset accounts.
Fixed Interest Rate Home Loans: These provide certainty with locked-in rates for a set period, making calculating home loan repayments more predictable.
Split Loans: Combining both variable and fixed interest rates, allowing you to hedge against rate movements.
The home loan interest rate you receive will depend on your deposit size, loan amount, and overall financial profile.
First Home Owner Benefits in Victoria
As first home buyers in Victoria, you may be eligible for several government incentives:
- First Home Owner Grant (FHOG) for eligible new properties
- Stamp duty concessions or exemptions
- First Home Loan Deposit Scheme access
These benefits can significantly reduce the upfront costs of purchasing your first unit.
Managing Lenders Mortgage Insurance (LMI)
If your deposit is less than 20% of the property value, you'll likely need to pay lenders mortgage insurance (LMI). This protects the lender if you can't meet your repayments. While LMI adds to your costs, it allows you to enter the property market sooner with a smaller deposit.
Some strategies to manage LMI include:
- Saving for a larger deposit to reduce or eliminate LMI
- Using family guarantee options
- Exploring lender LMI waivers for certain professions
The Home Loan Application Process
The streamlined application process for purchasing a unit typically involves:
- Pre-approval: Submit your home loan application with required documentation
- Property search: Find your ideal unit within your approved loan amount
- Formal approval: Provide property details for final loan approval
- Settlement: Complete the purchase with your solicitor
Having your documentation ready, including recent bank statements, payslips, and tax returns, helps expedite the process.
Unit-Specific Considerations
Purchasing a unit differs from buying a house in several ways:
- Strata fees: Ongoing body corporate fees affect your borrowing capacity
- Building insurance: Usually covered by body corporate
- Rental potential: Units often offer good rental yields in the property market
- Maintenance: Reduced compared to standalone houses
Lenders may have specific lending criteria for units, including minimum floor area requirements and restrictions on certain building types.
Building Home Equity
Once you own your unit, you'll start building home equity as you pay down your loan and property values potentially increase. This equity can be valuable for future property purchases or renovations.
Using features like offset accounts can help reduce interest payments and build equity faster by offsetting your savings against your loan balance.
Making Informed Decisions
When choosing between home loan rates and products, consider:
- Your risk tolerance for variable versus fixed rates
- Additional features like offset accounts and redraw facilities
- Ongoing fees and charges
- The lender's reputation and service quality
Remember, the lowest advertised rate isn't always the most suitable option for your circumstances.
Purchasing your first unit is a significant step towards homeownership. With proper planning and understanding of your home loan options, you can make informed decisions that suit your financial situation and goals.
Call one of our team or book an appointment at a time that works for you to discuss your home loan options and get personalised advice for your unit purchase.