$25k HomeBuilder offer – What we know so far

The federal government recently announced a $700 million housing package for Australians to access $25,000 grants to build a new home or start a major renovation.

What does that mean for you?

As a first home buyer or owner-occupier, understanding what federal grants, incentives and discounts that are available to you can be a nightmare. We’ve cut through the headlines and jargon and created a snapshot of the HomeBuilder Grant.

What is the HomeBuilder Grant?

• $25,000 grant to build a new home or start a major renovation
• Available to eligible first home buyers and owner-occupiers
• Must be entering into building contract between 4 June 2020 and 31 December 2020
• Construction must be with a licensed builder, and start within 3-months of the contract date
• Available to anybody who successfully applies

Who’s eligible?

To access HomeBuilder, owner-occupiers must meet the following eligibility criteria:

• you are a natural person (not a company or trust);
• you are aged 18 years or older;
• you are an Australian citizen;
• you meet one of the following two income caps:

• • $125,000 per annum for an individual applicant based on your 2018-19 tax return or later;
  • or $200,000 per annum for a couple based on both 2018-19 tax returns or later;

• you enter into a building contract between 4 June 2020 and 31 December 2020 to either:

• • build a new home as a principal place of residence, where the property value does not exceed $750,000; or
  • substantially renovate your existing home as a principal place of residence, where the renovation contract is between $150,000 and $750,000, and where the value of your existing property does not exceed $1.5 million;

• construction must commence within three months of the contract date.

This is a guest post from Lauren Robinson, Director of Rental Results property managers. 

What makes a good investment property? Well, it’s plain and simple. A good investment property is one that can yield not only a greater return of capital growth, but also of rental returns. Now, in order to maximise your investment return, there are a few key considerations you must make.

It is important to ensure that all of the contributing factors are right. This is due to the fact that the rental property market runs in cycles. The property values and desirability may either rise or decline in certain phases of the cycle, therefore, it is best that as a property investor, you are constantly aware of the market trends to ensure that your investment is taken care of.

How can you tell if a property would make a good investment? Here are a few things to consider:

Right Property

Apart from the desirable features of a property, it is crucial that you consider its continuous value to tenants and future home buyers. Is the property appropriate for the average age of residents in the area?

Do some extensive research about the area surrounding the property and find out about its demographics and what is relevant to it. Let us take an example. If you are buying a property in an area with a high population of elderlies, you would not want to buy a house that has staircases.

Right Location

Perhaps, the first thing you need to consider when finding an investment property is its location. When the property is set on a good location, there is a greater chance of gaining higher returns from your investment.

How can you tell if the property is on a desirable location? Here are the factors you need to consider:

• Close proximity to amenities such as schools, public transportation, public facilities (libraries, parks, post office, etc.), supermarkets and shops, restaurants, cafes, beaches, etc.
• Avoid areas that are likely to be dependent on a certain industry as much as possible. Yes, it certainly can be beneficial when the industry is doing good but what about when it’s not? If this happens, the value of your property may decline considerably.
• Look for places where there is a rapid growth of population. One of the direct effects of population growth is the development of infrastructures, which in turn increases the area’s desirability.
• Look for properties in areas that are close to major cities, preferably, areas that are also rapidly growing because these are usually the most sought after.

Right Return

When choosing a property to buy for investment, whatever you do, never decide based on emotion. Imagine what happens when a property turns out to be a bad purchase? It may result in capital growth below the rental income which would most likely fall short of the monthly costs to maintain the property. Therefore, it is crucial to conduct an extensive research prior to purchasing a property.

Right Management

What better way to ensure that your property is well taken care of and is certainly achieving its desired return than to employ the expertise of a professional. Choose someone who has extensive knowledge about property management, including the laws pertaining to rental properties. Doing so will guarantee you not only a good return on investment, but the luxury of a stress-free life as well.

Everything else will just run smoothly once you have these in order. Now, all you have to do is shell out the necessary amount to cover the costs involved. If you have found the perfect home to start your property investing journey but don’t have the capability to purchase the asset in cash, then you can apply for a home loan.

If you’d like to find out more information about purchasing an investment property or a review of your existing loans call us today on 07 3847 9450. For more information on property management or a free rental appraisal contact Lauren Robinson and the team at Rental Results on 07 3123 7373.

What is Lenders Mortgage Insurance?

Lenders Mortgage Insurance, or LMI, is an insurance policy that protects the lender in the event that the borrower defaults on their home loan. It is paid as a once off premium when the loan is taken and does not influence the interest rate.

When do you need LMI?

Whilst some differences can apply in specific circumstances with some lenders, the general rule is that LMI will apply if the borrower is seeking finance for over 80% of the value of the property.

Why do banks need LMI?

Until the 1960s lenders would only provide loans to buyers for up to 80% of the value of the property. Banks saw it as too great of a risk to lend above this amount in case the borrower was unable to make the repayments. This made it incredibly difficult for those looking to purchase their first home to enter the market.

The introduction of LMI enabled them to lend more as the bank transfer some of the risk to the insurer – in the same way people shift the cost of replacing a stolen television with home contents insurance.

Who and what is protected by LMI?

The greatest confusion we see around LMI regards who and what the insurance covers. Lenders mortgage insurance only protects the lender in the case that the borrower is no longer able to make their repayments. If the lender cannot recover all of their money they can make a claim.

LMI should not be confused with insurance protects that a borrower can take – such as loan protection insurance or mortgage protection insurance. It is also important to investigate various life, disability and income protein insurances when purchasing a property and taking out a mortgage. For most people their home is their largest asset and it is important to secure it and your financial health.

LMI in the real world

Although there are only two major LMI insurers in Australia the cost of the LMI premium can vary between lenders – each will have their own commercial agreements and policies. Whilst it is not possible to choose which mortgage insurer your lender uses, Apple Loans will be able to provide costs to you so that you can make an informed decision on which lender to proceed with. The two main factors that influence the cost of LMI are the loan amount and what percentage of the value of the property is being borrowed.

Because LMI can range widely in cost – from a few thousand dollars to over twenty thousand in some cases – most lenders will allow you to add some (or all) of it to the loan amount.

If you have any questions about Lenders Mortgage Insurance don’t hesitate to contact us on 07 3847 9450.

Completing a valuation of a property that you are purchasing is a required part of the mortgage application process for the majority of lenders. In most cases the bank will arrange to have an independent valuation to ensure the purchase price reflects market value and for the bank to determine the value of the property that is being used to secure a home loan. Primarily, the valuer’s role and focus is on protecting the lender.

Why is the valuation important to your loan?

The valuation figure is key when the banks are determining how much they will lend against your security – a ration known as “loan to value” or LVR. If you are purchasing a property the bank will use the lower of the purchase price or the valuation to determine the maximum loan amount. If you are refinancing the valuation figure will determine that ratio alone.

Things that the valuer will look for to determine their price valuation include:

• Location and land size;
• Building structure, age, conditions and any faults;
• Presentation and interior fit-out;
• Landscaping and additions (pool, garage, carport, shed etc); and
• Any relevant planning and zoning restrictions.

Once evaluating these features of the property the valuer will use recent sales of comparable properties in the surrounding area to place the property being purchased or refinanced in context and provide the lender with a valuation. You do have the option to request a valuation report on a property you may wish to purchase or your current property. This is a good option if you are looking to bid at auction.

What can you do?

If you are using equity in an existing property to assist with another purchase it is important to maximise its value. Whilst you cannot control the market and other sales in your street and suburb there are a few things you can do:

Be aware that the valuer will likely photograph the kitchen and bathroom;

Finish any odd-jobs or small improvements/renovations you are in the middle of – even though they may be small they provide the impression that work needs to be done to the property; and

Know the area – any insight you have about services, schools and local infrastructure can help the valuer.

Legal fees, realtor fees, stamp duty and bank fees can add up to a considerable amount and when a budget is already being stretched a lot of buyers will choose to skip having a pest and building inspection completed. This may save you $500 in the short term but it can be catastrophic in the long run and lead to thousands of dollars in repairs. It is recommended to have a building and pest inspection when purchasing – building advisors Archicentre believe one third of Australian homes can have pest-related timber damage.

Pest Inspections

Pest inspections will focus on timber damage from pests such as termites and borers and fungal decay. Inspections will generally be non-invasive and focus on what can be seen and heard without going inside cavities and removing structures.

Building Inspections

A building inspection will reveal important information regarding the condition and integrity of the building structure. Inspectors will look for with a range of potential issues with

• Electrical and plumbing systems;
• Kitchen and bathroom joinery;
• Driveways and concreted paths;
• Guttering and external pipes;
• Windows and doors;
• Extra buildings including sheds;
• Retaining walls;
• Roof and attic space;
• Walls; and
• Underfloor space.

Inspections are conducted by qualified building inspectors and reports will outline the condition of the property. Generally they will not provide quotes on any repairs they may need completing.

When

Whilst it would be ideal to have inspections completed before signing a contract it is not always practical. The inspection should be the final tick of approval once you are otherwise satisfied with the property. Instead it is important that there is a clause in the contract that makes the sale subject to satisfactory building and pest inspections. Failure to do can mean that in the result of an unsatisfactory build or pest report that the buyer could forfeit their deposit or be responsible for any costs to fix the issues found – this can force the buyer to pull out of the sale and lose their deposit or purchase the property and be responsible for the costs associated with the issues found.

What if something goes wrong?

If the reports from the qualified inspectors show issues that could be costly to fix there are a number of paths the buyer can take. It is possible that the buyer could pull out of the purchase if they no longer wish to purchase the property – this is why it is important to include inspection clauses into your contact and then have the inspections completed as soon as possible. Another option for buyers in these circumstances is for a renegotiation on price to take place to cover any significant costs that the purchaser will face.

Find an inspector

Often the Real Estate Agent managing the transaction will suggest building and pest inspectors. It is important to remember though that when buying you want the building inspector to be ‘working for you’. Speak to any family and friends who have recently purchased property or your conveyancer or mortgage broker for suggestions – they deal with these situations daily and will be able to assist you.

When applying for a home loan to purchase or refinance a property there are a number of factors that the lender will consider in the approval process. Will the borrower have the capacity to make the repayments? What is the current value of the security? And how will it change over time? How much capital or equity is available? What is the borrower’s credit history?

A clear credit history is incredibly important and you’d be surprised how easily your credit rating can be impacted. Any organisation that you owe money to, from a bank to an electricity supplier to a rental company or phone provider can record a default against your name if you have failed to make payments on time. In some cases you may not be aware that a creditor has recorded a default against your name until applying for credit in the future.

In addition to defaults, applications for credit are recorded on your credit profile. This means that all instances where you have applied for a credit card, car loans, personal loans and even rentals impact the credit rating – even if you did not follow through and accept the offer. There have been instances where someone may apply for multiple credit cards and personal loans in the months before seeking finance to purchase property, only for it to negatively impact that application.

Tips to help protect your credit rating:

• Always pay your bills on time;
• Act quickly if you are having trouble making payments. It is best to organise a repayment plan with a creditor before it gets out of control; and
• Research and consider each credit application you make. More applications will not necessarily mean more chances for obtaining credit. In fact it could have the opposite result.

Changes to credit reporting

From March 2014, credit reporting changes came into effect that change how late payments are able to appear on a credit record. It will be possible under these news rules for creditors to record the late payment against your name after just five days. With these new reporting methods it will become increasingly important to stay on top of all required payments.

How can you check your credit history?

Instead of waiting until making an application for credit you can contact credit agencies Veda Advantage or Dun and Bradstreet who can return reports within ten days. Remember requesting these reports does not count as a credit application and cannot impact the report or any others in the future.