Unlock your dreams: Achieve home ownership with confidence through personal insurance & home loans
Are you looking to take your first steps on the property ladder? Do you dream of owning a home but feel overwhelmed by all the loans options and paperwork involved in making it happen? Don't worry—we've been there too! For many, owning a home is a significant milestone, a symbol of financial stability, and a long-term investment. However, the path to achieving this dream can be challenging, especially for first-time homebuyers. It can be overwhelming to navigate through the various home loans and insurance options available, with no clear understanding of what's right for you. So here we'll try to break down the processes so that young families like yours have an easier time getting onto—or climbing up—the housing ladder, with tips sprinkled in for good measure!
Getting started with home buying
So, you've decided to take the plunge and buy a home? Good on ya! But unlike the giant game of Monopoly, you're not second-guessing buying hotels and railroads, but you're investing in a place to call your own.
So one of the best things you can do when starting the home buying process is to speak with a broker. Brokers are licensed professionals who can help guide you through the borrowing process, including discussing your borrowing capacity, how much deposit you need, and the various lender options available to you. They can also provide insights into your credit score and offer tips on how to improve it, which can impact your ability to secure a home loan. By working with a broker, you can have access to expert advice and support throughout the home buying process.
This is also when you can figure out your budget—how much can you afford to spend, realistically? Knowing how much you can afford to spend on a property can help you narrow down your search and avoid the disappointment of falling in love with a property that's out of your budget. Several factors contribute to the cost of buying a home, including the property's location, size, and condition, as well as the loan's interest rate, term, and repayment structure. Talk to your broker to get an estimate of your potential repayments.
How much do you need?
Okay, so let's get down to brass tacks—how much do you need? I mean, I could make a wild guess, but I reckon you probably want a more accurate figure than that. The thing is, it really depends on what we're talking about. If you're asking how much food you need to survive, well, that's a pretty easy one. The amount of money you need to buy your first home will depend on several factors, including the purchase price, the lender's requirements, and any schemes or grants you may be eligible for. Please note, the example below may vary depending on which lender you, or your broker, is looking at putting you through. However, the below can help be used as a guide!
Pre-approval process
So, you've decided it's time to buy a house. But before you start dreaming about how to decorate the bedrooms, there's the pesky pre-approval process to tackle. I know, I know, paperwork isn't the most thrilling thing in the world. Think of pre-approval as your golden ticket—it shows sellers you're serious about buying and gives you a clear idea of your budget. Plus, if you get denied, you can always drown your sorrows in a cold VB. So, let's roll up our sleeves and get to work, eh?
So it's time to get pre-approved for a home loan. This process can be essential for buying a home, but whether you need it or not will depend on the state you're in and the type of purchase you're making.
In NSW, pre-approval is highly recommended, as usually when you offer in NSW, your offer is not always subject to finance like it may be in other states, but is bound by something called a ‘cooling off period’ instead. This means that if you make an offer on a property and it's accepted, but for some reason your finance is declined, you will very likely lose some money (usually 0.25% of the purchase price). Having pre-approval can give you the confidence to make an offer and avoid any potential legal issues.
In other states, such as Victoria, pre-approval is usually recommended, but if you are able to offer subject to finance and ensure the contract is reviewed by your conveyancer prior to signing, and they have also checked off to ensure you are covered by this clause, then if the same situation happened where your finance was declined, unlike NSW, you should not lose any deposit. However, pre-approval Aus wide is highly recommended if you're going to auction or offering an unconditional offer. It's important to understand the requirements in your state and seek expert advice if you're unsure.
The pre-approval process typically involves speaking with a broker, who will help you understand your options, including your maximum borrowing capacity and deposit requirements. The broker will then research which bank is most suitable for your situation and help you complete the application process, including gathering documents and submitting the application to the bank.
The bank will then assess your application, including your income, expenses, and credit history. If everything checks out, they will provide you with a pre-approval letter, which shows how much you can borrow and gives you the confidence to start house shopping. Just keep in mind though, even pre-approvals are still always subject to the valuation on the property you are purchasing being acceptable to the bank, and your situation not changing.
Costs and Schemes
Let’s have a bit of a yarn about costs and schemes—a topic that's enough to make anyone's eyes glaze over. But don't worry, we'll make it as ripper as a day at the beach.
So, when it comes to costs, it's easy to get bamboozled by all the different fees and charges. So take the time to suss out what you're paying for. When purchasing a home, there are several costs to consider, including:
Stamp duty (or first home buyer choice in NSW) - This is a state tax levied on the purchase price of a property. The amount of stamp duty varies between states and territories, and exemptions or concessions may be available for first-home buyers.
Conveyancer - A conveyancer is a licensed professional who helps with the legal aspects of buying and selling property, including preparing and lodging legal documents and conducting property searches. The cost of a conveyancer varies depending on the complexity of the transaction.
Bank fees - Banks may charge various fees when processing your home loan, such as application fees, valuation fees, and settlement fees. These fees can add up, so it's important to understand the costs involved and compare loan options from different lenders.
Government fees - In addition to stamp duty, there may be other government fees involved in the home buying process, such as mortgage registration fees and transfer fees. These fees are payable to the relevant state or territory government and can vary depending on the purchase price of the property.
Building and pest inspection - It's important to have a building and pest inspection conducted before purchasing a property to identify any potential issues or defects. The cost of a building and pest inspection varies depending on the size and age of the property.
Council fees - In some states and territories, you may also be required to pay a fee to the local council when purchasing a property.
It's important to factor in all these costs when assessing your budget and ensure that you have enough savings to cover them. Working with a mortgage broker or financial advisor can help you understand the costs involved and make an informed decision about your home buying journey.
And when it comes to schemes, we all love a fair go. So, if you're looking to save some cash or get a leg up in life, keep your ears to the ground and your eyes peeled for the following:
First Home Loan Deposit Scheme - This scheme allows eligible first-home buyers to purchase a home with a deposit as low as 5%, without requiring Lenders Mortgage Insurance (LMI). This scheme is available for a limited number of buyers each year, so it's important to check your eligibility and apply early.
Single Parent Scheme - This scheme is designed to assist single parents who may have difficulty saving for a deposit. Eligible buyers can purchase a home with a deposit as low as 2%, without requiring LMI.
Home Buyer Fund - This scheme is available in Victoria and provides a one-off payment of up to $20,000 to eligible first-home buyers who purchase or build a new home in regional Victoria. Brokers cannot provide advice on this scheme, so it's important to research the eligibility criteria and application process through the state revenue office.
First Home Super Saver Scheme – This scheme allows eligible first-home buyers to make voluntary contributions to their superannuation fund, which can then be withdrawn to help pay for a deposit. There are restrictions and rules around how much can be contributed and withdrawn, so it's important to understand the full details before taking advantage of this scheme.
Now, on to personal insurance!
While buying your first home can be an exciting and fulfilling experience, it's important to consider personal insurance options to protect yourself and your loved ones. Personal insurance can provide financial security in the event of unexpected events such as death, injury, or illness.
There are several different types of personal insurance available, including:
Life/Death Cover - This policy pays out a lump sum if the insured person passes away. This lump sum can help pay off any debts or mortgages and provide financial security for the family left behind.
Total and Permanent Disablement (TPD) - This policy pays out a lump sum if the insured person is totally and permanently disabled and unable to work again. This lump sum can help cover medical expenses and provide financial security.
Income Protection - This policy pays out a monthly benefit if the insured person is unable to work due to illness, injury, or disability. The benefit can help cover ongoing expenses like mortgage payments and living expenses.
Trauma Cover - This policy pays out a lump sum if the insured person is diagnosed with a serious medical condition, such as cancer or heart disease. The lump sum can help cover medical expenses and provide financial security during a difficult time.
Child Cover - This policy pays out a lump sum if the insured person's child experiences a serious medical event, such as a major illness or injury.
When it comes to personal insurance, it's important to consider your individual needs and circumstances. You may want to speak with a financial advisor or insurance broker to help you understand the different types of policies and find the one that best suits your needs.
Overall, personal insurance can provide peace of mind for first-time homebuyers, ensuring that their investment and their family's financial future are protected in the event of unexpected events.
Group, direct, and retail cover
If you're keen on getting some personal insurance, there are a few ways to go about it: group cover, direct cover, and retail cover.
First up, there's group cover - which is usually sorted out through your workplace or superannuation fund. The downside? You can only use it while you're part of the group, so don't go quitting your job without a backup plan.
Onto option two: direct cover. This is where you rock up to an insurance company or through intermediaries, and they sort you out with a policy. No middleman, no fuss. However, this type of policy can be inflexible and may not offer as many options as other types of cover.
Finally, there's retail cover. Think of this like going into a shop and picking out your insurance policy off the shelf. It's usually done with an insurance broker, who can help you figure out what you need and what you don't. A financial adviser can help you choose the best policy for your needs, based on your health history and the premiums charged by different insurance providers.
Why personal insurance is important for first-time home buyers
Getting insurance when young and healthy is the best time to do it.
I know insurance sounds like a real snooze-fest, but if you're young and healthy, now is the time to get covered. You don't want to be stuck paying sky-high premiums because you waited until your health went downhill. You might also find that pre-existing medical conditions are excluded, meaning you won't be able to claim on them. This is because insurance companies will ask about your health history, and the best time to apply for cover is before any health conditions arise. Getting insurance at a young age also means you will likely pay lower premiums for the same level of cover, as you are considered to be a lower risk to the insurer.
Your ability to work pays for your mortgage.
Before you even start dreaming of pool parties and backyard BBQs, let's talk about something important—your ability to work. Yep, your job is going to be what helps you pay for that shiny new mortgage. And if something happens and you can't work, well, you might find yourself in a bit of trouble trying to make those payments. Personal insurance will give you a financial safety net in case you end up getting sick, injured or dealing with some other health problem that stops you from working. So you can go ahead and sip on a cold one while personal insurance has got your back.
The lifetime value of your income is massive when young.
Did you know that the earning potential of your youth is worth a bloody fortune? Let’s say you’re a 30-year-old with a salary of $80,000 total value of income is $4,504,113 or $100,000 salary total value is $5,630,141. We’re talking about potentially millions of dollars here!
And if you're a first-home owner, it's even more true! By getting insurance early on, you are protecting the future value of your income, as it provides a financial safety net in the event that you cannot work due to an injury, illness or other health condition.
Chance of happening vs Financial Impact - Pre home loan & dependants
It's always good to consider the ol' matrix of the likelihood of an event happening and the financial impact it could have. For instance, there are some events that are highly unlikely to happen and would have a low financial impact. In such cases, insurances like death or life insurance may not be as important, especially if you are young and do not have dependents.
But when it comes to disability insurance, things start to get a bit more dinky-di. If you're young and you can't work because you've fallen off a dangly bit, it can have a real financial impact on you. Sorting out insurance can scrape together a living while your body mends itself. On the other hand, income protection insurance may have a higher likelihood of happening than becoming totally disabled, but its financial impact may be less.
Once you get a home loan, the importance of life insurance cover increases, especially if you have dependents. It is crucial to assess your needs carefully and seek professional advice to determine the right insurance cover for you.
Chance of happening vs Financial Impact - Post home loan
So, turns out that taking out a home loan means that if something happens to you or your partner (touch wood), you're up for some serious financial pain. Like, if one of you passes away, the other has to pick up the tab for the mortgage repayments and all that jazz. Not great for your wallet or your mental health.
It's also important to consider the likelihood of the event happening. While the chances of someone passing away unexpectedly may be relatively low, it's still a possibility. Additionally, other events like accidents or illnesses that leave you unable to work could also have a significant impact on your financial situation. That's why it's important to consider additional types of insurance like income protection and total and permanent disability cover.
Overall, it's crucial to assess both the likelihood of an event happening and the potential financial impact when determining what types of insurance to get after taking on a home loan. A financial adviser can help you navigate the different options and determine what type and how much insurance is right for you.
Chance of happening vs Financial Impact - Post home loan & dependants
It's important to note that there is no one-size-fits-all approach when it comes to insurance. It really depends on your personal circumstances, including your age, health, dependents, and financial situation.
When it comes to life insurance, as I mentioned earlier, the financial impact of your death may be greater after you have taken out a home loan or have dependents. It's important to consider how much debt you have, how much your partner or dependents rely on your income, and how long it would take for them to become financially stable without you.
For disability and income protection insurance, the likelihood of an event happening may increase as you get older, but it's still important to consider the financial impact of being unable to work for a prolonged period of time. This can be especially devastating if you have a mortgage to pay off or dependents to support.
It's also important to consider your lifestyle and hobbies when it comes to personal insurances. For example, if you enjoy sports, you may want to consider adding extra cover for accidents or injuries.
Overall, the key is to find a balance between having enough cover to protect yourself and your loved ones, without over-insuring and paying excessive premiums.
Determining the right amount of cover
When it comes to the level of cover, we're not going to give you some boring calculator to figure out how much cover you need—after all, that would require some basic math skills. Nope, we suggest you go see a financial adviser.
At Skye, our philosophy is to leave you in the same financial position as if nothing happened. We want to make sure that you're financially stable and secure even if something unexpected happens.
Oh, joy! It's time to weigh up your personal insurance options. When deciding on the right amount of cover, it's important to consider all your personal insurances, such as life insurance, disability insurance, income protection insurance, and trauma insurance. These bad boys can be a life-saver when things go pear-shaped.
Now, if saving some cash is a priority, you can go for less cover. But if you'd like to not have to sell a kidney if things go awry, then maybe splurging on a higher premium is the way to go. The choice is yours. At the end of the day, it's about finding the right balance that works for you and your budget.
The biggest myth about buying a house and life insurance
We often hear people think they can't get insurance and save for a house at the same time.
I get it, buying your first home is a big milestone and saving up for a deposit can be a daunting task. But the truth is, you can still get life insurance, total permanent disability insurance, and income protection insurance while saving for your house deposit.
If you've been struggling to save for a house deposit, life insurance doesn't need to be the enemy. Sure it's hard work putting together all that money—but did ya know there are ways of protecting your future AND saving up at the same time? One of the ways is through your super fund and it won't impact your ability to save for your house deposit.
Of course, there are some limitations to getting insurance through your super fund. You won't get trauma cover or child's cover, and it may not be the ideal way to set up your insurance policy. While this can be a good way to get covered in the short term while cash is tight, it's important to consider the long-term impacts of premiums on your super balance, now and into the future.
Now, I want to clarify that getting insurance through your super fund means you might miss out on some features that are only available with retail insurance policies. It's essential to talk to a financial adviser and weigh your options to determine what works best for your situation. Remember, it's always better to have something than nothing.
Does it impact borrowing?
So, the question on everyone's mind when it comes to getting insurance is: does it impact your borrowing power? Well, it depends but basically the answer is YES. It's not a cut-and-dried situation but here's the gist: if you're coughing up dough for anything through your bank account, it can make an impact on how much money they'll lend you. Banks want to know exactly what you're spending your money on, so they look at the nitty gritty including premiums too.
But there's good news. You can set up your insurance in a way that won't impact your borrowing power. For example, you can get life insurance that's 100% funded through your super fund. This won't affect your bank account or your borrowing power. However, as we've mentioned earlier, there are some limitations with this method.
After you've purchased your home, you can adjust your policies to add on a trauma policy or structure them in a way that suits you. Again, it wouldn't hurt to talk to a financial adviser to ensure you're setting up your insurance in the best way possible.