Helping you get ready to sign on the dotted line........
Struggling to save for a 20% deposit on your first home? With different purchasing options and Australian Government initiatives, homeownership may not be beyond your reach after all.
Tip 1: Buy off-the-plan
Buying off-the-plan is a fantastic way to buy brand new. First home buyers might find benefits in buying a townhouse or an apartment off the plan from a developer such as the potential to earn capital gains and save on stamp duty.
Capital gains:
- The main advantage of buying off-the-plan is that you agree upon a purchase price before the building is completed, and often only need to offer a small deposit (approximately 10%).
- Buying off-the-plan means that you could pay a lot less for the property than it’s worth at the time you move in.
More time to save:
- Buying off-the-plan gives you extra time to get your finances in order, as you are generally only required to put down 10% to secure the contract, giving you the construction time to save up the outstanding balance.
Save on stamp duty:
- Canberra has great discounts on newly constructed properties where stamp duty has been abolished for off-plan apartments and townhouses valued at $500,000 or under. This applies to all owner-occupier buyers of off-the-plan properties, whether you are a first-time home buyer or looking to downsize.
Disclaimer: While buying off the plan come with great benefits, it also comes with significant risks. There is the chance that the finished product could fall short of your expectations, construction could be delayed, or the development could fail to go ahead. While it is important to weigh up the pros and cons, the most important thing is to ensure that you do your research before choosing this option (or any other option).
Tip 2: Rentvest
Challenging traditional thinking about home ownership, rentvesting is a way forward for you to break into the property market, without sacrificing your lifestyle. Rentvesting involves you renting a property where you want to live, and buying an investment property in a suburb you can afford.
This strategy lets you:
Buy where you can afford, live where you want to:
- Rentvesting gives you an opportunity to live in places where buying is not ideal due to high purchase prices. There are many reasons why you may want to live in a particular area; better schools, a safer neighbourhood, a bigger house, or proximity to family or lifestyle amenities.
Build wealth:
- Property investments typically provide rentvestors like yourself a fantastic opportunity to generate wealth through capital growth. If your investment property rises in value, you could sell it at a profit down the road, or use the equity to further build on your wealth.
- On top of capital growth and the ample opportunities that branch from that avenue, you can also use the income from leasing out your investment property to pay your rent.
Tax benefits:
- With an investment property, it’s possible for you to claim holding costs, plus depreciation costs each year. Some initial costs (e.g. stamp duty, conveyancing and lending fees) can also be claimed, depending on the situation.
Tip 3: First Home Buyers Super Saver Scheme (FHSS)
Save for your first home in your superannuation and get taxed half of what you would be saving outside of your super.
The First Home Super Save (FHSS) scheme was introduced by the Australian Government in the Federal Budget 2017-18 to reduce pressure on housing affordability. With the scheme, you can salary sacrifice into your superannuation when you are saving up for your first home and withdraw the funds when you are looking to place down a deposit on your first property.
Doing so lessens your taxes paid as superannuation is only taxed at 15%, whereas most regular income is taxed from 30% up to 45%.
You can use the FHSS scheme if you are a first home buyer and both of the following applies to you:
- You either live in the premises you are buying, or intend to as soon as practicable.
- You intend to live in the property for at least six months within the first 12 months you own it, after it is practical to move in.
You can apply to have a maximum of $15,000 of your voluntary contributions from any one financial year included in your eligible contributions to be released under the FHSS scheme, up to a total of $50,000 contributions across all years, starting from 1 July 2022.
You will also receive an amount of earnings that relate to those contributions and must apply for and receive an FHSS determination before signing a contract for your first home or applying for release of your FHSS amounts.
Source: Australian Taxation Office
Tip 4: First Home Loan Deposit Scheme (FHLDS)
The First Home Loan Deposit Scheme (FHLDS) provides lenders with a government-backed guarantee that allows some eligible first home buyers to purchase a home with a deposit of as little as 5%.
The First Home Loan Deposit Scheme (FHLDS) is a federal government initiative where the National Housing Finance and Investment Corporation (NHFIC) guarantees to a participating lender, up to 15% of the value of the property purchased, that it is financed by an eligible first home buyer’s home loan.
You can also access the scheme without Lender’s Mortgage Insurance (LMI) which is a premium added to home loans with a less than 20% deposit to protect banks against payment defaults, which means you can get onto the property ladder even earlier.
10,000 First Home Loan Deposit Scheme places were made available to eligible first home buyers from 1 July 2021, ending 30 June 2022.
Source: National Housing Finance and Investment Corporation
Some buying their first home could be in a fortunate situation where they can team up with their parents to get their loan guaranteed (Parental Guarantor).
A parental guarantor can use their home’s equity to guarantee part of their children’s purchase to help them meet property prices that would otherwise be beyond their reach.
Check with your mortgage broker to see if this option is suitable for you.
Interested in buying your first home? Speak to our friendly team for a tailored consultation on 1300 815 921 or at info@greenassociates.com.au
At Green Associates, all of our advisers are fully licensed and listed on the ASIC Moneysmart Financial Adviser Register. Green Associates is committed to providing the best solutions for you and your wealth-creation journey.
