How to get into the property market now. Part 1
To get into the property market we need money. To get the money we need to borrow it from a bank.
The banks would lend only part of the funds required to complete the purchase, so the idea is to work out the best options available to buy our property paying as little money as possible, and have the bank or other parties pay the rest.
There are 3 main cost components* to a property purchase: deposit, lenders’ mortgage insurance (LMI) and stamp duty.
As a minimum, to buy a property, borrowers would be required to contribute 5% genuine savings plus transaction costs. For example, to purchase a $400,000 property in Queensland with a 5% deposit, a buyer would need to contribute approximately $47,675 including all costs in the transaction.
Following the example, if you are a first home buyer you may be eligible for an exemption on stamp duty tax. If this is the case, to purchase the same property you would only need to contribute around $34,174.
See below for more details:
- A deposit of 5% on a $400,000 property is $20,000.
- In this example, the lenders’ mortgage insurance premium would cost $14,174. LMI is a cost charged by the banks when the amount borrowed is more than 80% of the property value. This insurance protects the lender in case the borrower fails to meet their mortgage repayments. It is not to be confused with Loan Protection Insurance which would protect the borrower against health issues, death and temporary unemployment.
- In Queensland, the stamp duty payable for a property like the one in this example would cost $13,501. Stamp duty is a state property tax and the amount will vary state by state and depending on the property value. If you are a first home buyer the good news is that you may be exempt from this tax.
We will continue this discussion in our next two articles, talking about how to get a property within our budget (Part 2) and then, how to buy our property with no money of our own (Part 3).
*Banks’ upfront fees and other legal fees not included.
Disclaimer:
This article is written to provide a summary and general overview of the subject matter covered for your information only. Every effort has been made to ensure the information in the article is current, accurate and reliable. This article has been prepared without taking into account your objectives, personal circumstances, financial situation or needs. You should consider whether it is appropriate for your circumstances. You should seek your own independent legal, financial and taxation advice before acting or relying on any of the content contained in the articles and review any relevant Product Disclosure Statement (PDS), Terms and Conditions (T&C) or Financial Services Guide (FSG).
Please consult your financial advisor, solicitor or accountant before acting on information contained in this publication.
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