First Home Buyer Myths Busted

Everyone appears to be an expert when it comes to property, spouting off one phrase after another and impacting the decisions of would-be first home buyers. So what is truth and what is myth?

**You need to reduce your debt first or be debt free!**

Being debt free and reducing debt certainly helps your position and can make a new mortgage more affordable, but buyers do not necessarily have to be debt free. Most first home buyers have at least some minimal debt. The key is to make sure you do not overburden yourself.

If there is a mountain of unsecured debt, a debt reduction strategy should certainly be considered, or perhaps consolidation might be an option. Mortgage brokers can assist with exploring options to restructure, minimise or consolidate debt, alongside budgeting and affordability assessments.

**Parental guarantees are no longer available**

Many lenders still offer parental guarantees – in fact, some even allow friends and other family members to provide a security guarantee. It is important to understand that a security guarantee is for equity only, and lenders do not take into account the guarantor's income when assessing borrowing capacity.

**You need a 20% deposit to buy your first home**

While a 20% deposit opens up more doors, gives access to better offers and makes assessment policy easier, it is not the only way. What many are referring to when they say this is that 20% is generally the point where buyers are no longer required to pay lenders mortgage insurance (LMI).

There are lenders that consider deposits as low as 5%, and some may consider a 2% deposit for lower income earners if specific criteria are met.

Most first home buyers start out with a 5–10% deposit, focus on paying down the home loan, and then consider more competitive options a few years down the road when they have built up equity in their property.

**You need to have a good credit rating with no defaults**

It is certainly easier with a clean credit history, but options may exist for those with a lower credit score, past defaults or prior bankruptcy.

While traditional banks can be strict on these types of applications, specialist lenders exist for these scenarios. These options may carry higher interest rates and fees, but can provide a pathway forward. Some situations may require a larger deposit, while certain lenders still consider up to 95% LVR for higher risk applications.

**You need to be with your employer for 3, 6 or 12 months and must have completed probation**

While many lenders prefer a minimum tenure, some major lenders assess applications based on previous employment history rather than current job status. If an applicant has worked in the same field for two or three years and recently changed employers, policies may accommodate the transition.

Some lenders consider applicants currently on probation or even on day one of employment, provided required documentation such as payslips can be supplied prior to settlement.

**It's cheaper to rent**

This comparison depends on several factors. Homeowners are responsible for maintenance, rates, strata levies and other associated costs. Property markets also fluctuate; rental markets slow down at times, while property sales values can drop in other phases. However, renting involves paying off someone else's mortgage without building equity. Paying $300 a week in rent over 30 years totals $468,000 in direct costs, assuming rent never increases. Because rents typically rise over time, total rental expenditure over 30 years can end up significantly higher.

By contrast, a mortgage on a $350,000 property at 5% interest over 30 years equates to roughly $525,000 in total repayments. While maintenance, rates and interest add to the expense, homeownership yields an asset at the end of the loan term. Rates and property values fluctuate over time, but homeownership builds long-term equity.

Almost everyone has an opinion when it comes to property. Before letting someone else's opinion shape your thoughts or affect your actions, do some research and make up your own mind. Seek professional guidance to ensure any decision fits your individual goals.