For First Home Buyers and Guarantors
Tuesday 28 July 20
This last couple of weeks I've been helping a lot of first home buyers and those considering a Family Guarantee. I thought it might be of help to some of you or perhaps those with older children looking to purchase their first home. Here's some helpful bits for all you first home buyers and parents of first home buyers.
How much does the First Home Buyer need to save?
If the applicant and their spouse are first home buyers, they will generally need to have at least 5% of the purchase price saved up, plus enough for lenders mortgage insurance (unless they get a guarantee). Now, if one of the borrowers has owned property before, they will need at least 5% of the purchase price, plus lenders mortgage insurance and stamp duty. Stamp duty is pretty easy to calculate online, but you'll have to give me a call to get a quote on lenders mortgage insurance. Now, the 5% model is just barely squeaking through, and it doesn't work for all scenarios… They'll do much better if they have 20% saved up if there's no guarantor.
What about that guarantee option?
Family guarantees mean that the borrower can borrow 100% of the purchase price, but they'll still need some way of paying the deposit and associated costs which will be payable prior to settlement. The First Home Loan Deposit Scheme is another way of getting a guarantee if they don't have a parent or sibling who can go on as guarantor. There's limited places for the scheme and there are income, location and citizenship requirements. The First Home Loan Deposit scheme requires applicants to have 5% saved up in genuine savings, plus around $3,000 buffer to cover legal fees and incidentals.
My parents are afraid they will lose their house if they go on as guarantors...
Should the borrower not be able to make home loan repayments, lenders will always take action on the applicants property first before seeking out the guarantor to pay out the outstanding debt. Also, the guarantor is only liable for the amount specified in the family guarantee. If the borrower is unable to meet their financial obligations under the loan, the guarantor may need to pay for the debt commitments on behalf of the borrower up to the guaranteed amount.
The credit provider cannot enforce the debt against a guarantor until:
1. A default notice has been issued to the guarantor and
2. The default notice remains unpaid and
3. The credit provider has obtained a judgment against the borrower and that judgment remains unpaid for 30 days.
The default notice gives the guarantor an opportunity to rectify the default and this will reinstate the contract. The bank will do everything in it's power to rectify the situation with the borrower directly and only contact the guarantor if attempts are unsuccessful and the relevant time frame has expired.
What if the borrower loses their job and can't pay the mortgage?
If the borrower is going through financial hardship, they can apply for a payment pause to give them enough time to get back on their feet. If they still can't find employment or financial relief from the situation after this, they will be able to sell the home and thereby pay out the mortgage. Now, if the sale of the home is not enough to pay out the mortgage, the guarantors may be liable to pay anything outstanding if the applicants don't have enough to cover it, but only up to the guaranteed amount. It's important to know that the process of repossession on the applicant's home will only commence if the mortgage has been in arrears for 90-180 days.
My spouse has owned property before, can we get the government guarantee and First Home Buyer benefits?
Unfortunately not. If your spouse or partner has owned property, even in part, you'll not be able to use the First Home Loan Deposit Scheme, receive the First Home Buyers Grant or be exempt from Stamp Duty. You can, however, receive the $25,000 construction grant. This grant is paid as a cash back after work has commenced, and you can't use it towards funding your new build or as a deposit.
As always, this is a very brief summary, and may not fit your situation. Give me a call or pass my details on to your First Home Buyers so they can get the most accurate information for their scenario.