These are the major myths holding back first homebuyers

TO ASSUME makes an ass out of “u” and me and who wants to be an ass when it comes to buying real estate for the first time?

It’s true that if you’re not already on the property ladder (and don’t have a bottomless bucket of cash lying about) then big banks and lending institutions tend to look at you with a sharper eye. But the financial scrutiny is not usually as harsh as many potential first homebuyers think.

Jessica Darnbrough of nationwide home loan brokerage, Mortgage Choice, said the group’s brokers hear a lot of the same misplaced myths time and time again when first homebuyers start their property journey.

“I think it’s very important to know the difference between mortgage

myths and mortgage realities and if you think you might not be able to get finance for whatever reason, then ask because you might be pleasantly surprised,” she said. So, thought you knew what lenders want? Here are some of the biggest first-time buyer myths:

1. I NEED A 20 PER CENT DEPOSIT BEFORE I CAN EVEN START HOUSE HUNTING

False. That much-bandied about figure is what lenders want in an ideal world, but there are ways around coming up with such a hefty deposit. For first time buyers in markets like Sydney, that’s good news because a 20 per cent slice of an average home could set you back more than $150,000 in cold had cash.

“It’s a myth and that’s really important to note. Most first homebuyers think, ‘I need a 20 per cent deposit plus costs’ and that could be solicitor’s fees, moving fees and stamp duty as well which might add up to 25 per cent. But the good news it that’s just not the way it is,” Ms Darnbrough said.

“Most lenders will lend up to 90 per cent, or more. Some will even go as high as 95 per cent or 97 per cent.”

“So, as a general rule of thumb 10 per cent is a far more realistic deposit size. The bigger the deposit the better, absolutely, but there’s nothing to say they have to have a 20 per cent deposit.”

2. BANKS DON’T LIKE LENDING TO SINGLES OR SMALL BUSINESS OWNERS

Not true. Sure, it might take longer to come up with the deposit if you’re a singleton, but as long as you meet the bank’s requirements, they don’t care about your relationship status.

“It’s bizarre to me but it’s something we hear from our brokers a lot. Single people will often think ‘Well, a bank isn’t going to lend to me while I’m single. I need a joint owner to buy with me like a partner, parent or a sibling’. But as long as you have the ability to service the home loan comfortably, you should have no problems finding finance.”

And for those keen househunters who are freelancers or have their own business, Ms Darnbrough said it’s a misnomer that lenders won’t give you finance.

“That is a huge myth. But there are a few rules and regulations that small business owners have to go by. You’re going to need to show two years of financials, that’s just an absolute,” she said.

“One of the biggest misconceptions is that people think even though they’ve changed careers, but were earning really good money in their previous job and built up lots of savings, banks will take into consideration they were earning good money once — they don’t. They don’t care what you were doing in the past, they’re looking at what you’re doing in the future,” she said.

3. I THOUGHT LENDER’S MORTGAGE INSURANCE PROTECTS ME

Wrong. That lump sum payment is there to protect the financial institution, not you the buyer.

“It’s such a common misconception in the world of home loans. People hear the words lender’s mortgage insurance and what they’ll really pick up on are the words ‘mortgage insurance’.”

“Often when brokers chat to people about protecting themselves and their assets the buyer will say ‘Oh no I’m OK, I’ve got lender’s mortgage insurance’.

“Unfortunately, lender’s mortgage insurance doesn’t protect the buyer. It just protects the lender in the event that the borrower defaults on the loan.”

But Ms Darnbrough said it was also important for buyers to note that the coverage is a one-off fee for first homebuyers who are looking to borrow more than 80 per cent of the property’s value (in other words putting up less than a 20 per cent deposit).

“And it can be capitalised over the life of the loan, so it definitely doesn’t have to come out of your saving or your deposit amount,” she said.

4. I WAS BANKRUPT/HAVE A BAD CREDIT RATING — I’LL NEVER GET FINANCE

OK, bankruptcy or a dodgy credit rating could pull the breaks on getting finance easily, but not for an eternity.

“People are constantly hearing credit history is important, and it certainly is important,” Ms Darnbrough said.

“But if you have discrepancies in your credit history, and you can explain those, then that’s not going to always leave a bad mark on you. People go on holidays, things come up, people forget to pay their credit card or phone bill from time to time.”

“People who’ve been declared bankrupt think ‘I’ll never get a loan’, but there are banks who deal with people who’ve had adverse credit histories and it might just mean that you have to wait a couple of years, but it doesn’t rule you out of the home loan market forever.”

5. I’LL FIND THE BEST HOME LOAN RATE ONLINE

Not necessarily. Ever clicked on a great hotel deal only to find that the “best price” is no longer available? That’s a bit like looking at some hot home loan deals online where the fine print can be very fine.

“We hear this a lot. Borrowers will tend to call their brokers and say ‘I’ve seen this amazing rate online. I can get a home loan for 3.99 per cent!’ The rates that are online are real rates, but they’re real rates for unique circumstances. So, say if you’re a first homebuyer and you’ve got a smaller deposit already you might not be eligigable for that particular rate or loan. Or maybe you’re building a property, so once again you might require a higher interest rate as well. “They’re for very vanilla circumstances like people who have the full 20 per cent deposit, or a great saving and credit history.”

6. MY CURRENT BANK WILL GIVE ME THE BEST MORTGAGE DEAL

Not these days. Grandfathers like to tell you that the saving account you opened on your 10th birthday will serve you well one day when it’s time to get a mortgage. Sorry Pa, those days are gone.

“For a lot of parents and grandparents mortgage brokers weren’t around when they were buying their first property. They already had their bank, so it made sense to go to the place they already did banking with because they could see their financial history. Also, often they knew the bank manager, went to school with them, or knew their family. These days there are so many more options and more lenders and brokers who can do the shopping for you,” Ms Darnbrough said.

“Sometimes lenders do recognise loyalty by offering potentially higher LVR (loan to value ratio) or something like that, but it definitely pays for the borrower to shop around.”

March 28, 2016 / news.com.au

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