First mortgages – first home buyer myths busted
Buying that first home will be the single biggest purchase most Australians will make in their lives. For first home buyers, it can be as daunting as it is exciting. The majority of Aussies won’t have the capital to purchase a home outright. The good news is that Australia has an abundance of first mortgage lenders and other providers of finance.
For first home buyers, it can be confusing to get across the facts – particularly when there are so many myths about who is and isn’t eligible for a loan. This is compounded as lenders continuously evolve their products and eligibility criteria, so it can be hard to work out what’s fact versus fiction.’
In this article, we’ll take a look at some common first home buyer myths to help you become more informed when considering your first mortgage in Australia.
Myth #1: Being single means you can’t get a home loan
There is a misconception that banks and other lenders will only approve mortgages for couples and families. The good news is, this is not the case! Whether you’re seeking a short-term first mortgage or a standard long-term home loan, if you meet the lender’s criteria, you can successfully apply for a mortgage- single or otherwise.
This myth may have originated from lenders’ ‘risk profile’ assessment, which traditionally views families (particularly double-income families) as lower risk. That said, this is not a prerequisite for getting home loan approval. In other words, it’s not part of the lending criteria.
Myth #2: Small business owners can’t qualify for a home loan
Whether it be applying for a home loan, personal loan, or even a credit card, many Aussies believe you have to have a full-time job and be a PAYG employee to even be considered for finance. Once more, this couldn’t be further from the truth.
This myth may have originated from it historically being difficult for a small business owner to qualify for a home loan due to inadequate income verification. Fortunately, the lending landscape changed significantly.
As it stands today, lenders actively support Australia’s evolving number of small business owners. As a result, many entrepreneurs have successfully applied for, and been approved for, a first home buyer’s mortgage.
The main difference in application is if you’re a small business owner, you’ll need to provide your business’ financial details to demonstrate you have the means to repay a mortgage – whereas wage earners supply the lender with copies of their most recent payslips.
Myth #3: A 20% deposit is needed to secure a home loan
The good news is that while a 20% deposit is often cited as an industry standard, it’s not something that is set in stone. Lenders vary and so do their criteria.
It’s worthwhile doing your homework to see what banks and private lenders are offering to ensure you’re working toward the right savings target. A mortgage broker can also be a tremendous help with this process.
Myth #4: You cannot buy an investment property as a first home
This is another first home buyer’s myth that needs to be busted. There’s no valid reason why a first home buyer cannot purchase an investment property. When you buy any home, it’s your choice whether you want to live in the place or rent it out. The upside of this approach is that the rent received can go toward paying the mortgage off. To enhance this strategy, some young first home buyers continue to live in the family home whilst renting out their investment property to help build up their savings and home equity.
Myth #5: The home loan with the cheapest interest rate is the best deal
Sometimes it is, but not always! A home loan with a cheaper interest rate might have fees or conditions attached that ultimately make it less attractive. There are a number of things to look at when searching for the right home loan – and the interest rate is only one piece of the puzzle. There are many factors to also be seriously considered, including the detail of the loan terms, what ongoing fees there are, whether there are penalties for paying out your mortgage early, etc.
It’s never wise to simply assume that the things you’ve heard about home loans for first home buyers are true. It pays to do your research in order to be able to separate the facts from the myths.