Page 13 - Smartline eBook - First home buyer

Buy to rent
If your home has a spare room, could you rent it out to a housemate to help cover the mortgage? Or would you even consider “rentvesting” where you buy in an area you can afford and rent out your property, while you continue to rent in the area you’d like to live? It’s important to understand the impact choosing this route will have on your eligibility for any first home owner concessions and grants.
Team up
Buying a home with a family member or friend may mean you can afford more than you’d otherwise be able to. Make sure you both receive independent legal and financial advice before you sign.
Get a family guarantee
Many lenders offer you the opportunity to have a close family member guarantee a limited part of your loan, giving you the chance to buy a property with a lower deposit and potentially save on Lenders Mortgage Insurance. It is important your guarantor seeks independent financial and legal advice, and properly understands their obligation.
Take out Lenders Mortgage Insurance
Many lenders will let you borrow as much as 95% of a property’s value with Lenders Mortgage Insurance (LMI). This insurance will make your home loan more expensive, as its cost will be added to each of your mortgage repayments if not paid upfront. But it can be an effective way to get into your first home sooner. It can also make economic sense in a rising market, where increases to property values mean you’d pay more in the long run by holding off.
Understanding Lenders Mortgage Insurance
Think you can only buy property with a 20% deposit? Think again. With Lenders Mortgage Insurance (LMI) you may be able to buy a home with as little as a 5% deposit. And, if you qualify for the First Home Owner Grant, many lenders will even let you count this towards your deposit.
Generally, you’ll need to take out LMI in a borrowing scenario where there’s a loan-to-value Ratio (LVR) of 80% or more. Lenders calculate your LVR by dividing the amount of your home loan by the value of your property. So if your property is valued at $600,000 and your home loan is $480,000, your LVR is 80%.
LMI protects a lender in case you can’t meet your repayments and shouldn’t be confused with mortgage protection insurance, which covers you if you’re ill or injured and can’t meet your home loan repayments.
Read more about LMI
First home buyer guide 13