Most young Aussies dream about buying their own home one day.
Then there are other some savvy first-timers who are opting to invest in a property first and remain renting where they want to live but can’t afford to buy.
Whichever type of property buyer they become, far too many find it more difficult than it need be because of a bunch of unhelpful common myths.
You see, despite all the good information available today, unfortunately there seems to be as much misinformation which stop many newbies getting on the property ladder.
So, let’s dispell six home buyer myths.
Myth 1. I need a 20 per cent deposit
Even though property prices around the country vary greatly, not many first home buyers can save a 20 per cent deposit when they're also paying rent while trying to save up.
While lending is currently more restrictive than in the past, that doesn’t mean that banks are only approving loans for borrowers with six-figure deposits.
Lenders have always understood how tricky it can be for first-timers to save a large deposit – and they still do.
While the days of borrowing 105 per cent of a property's value are thankfully behind us, many first home buyers can still secure loans with a ten per cent deposit and some lenders will even lend you up to 95 percent of the property's value.
Sure you'll have to pay LMI or Lenders Mortgage Insurance (more on that later) but that's a better strategy than futilely trying to save a “big enough” deposit that will probably never reach the 20 per cent mark because of prices growing faster than your ability to save.
Myth 2: If my parents guarantee my home loan, they’ll be out of pocket
A lot of first home buyers are turning to the bank of mum and dad to help them get into property.
Sometimes your parents give you a gift of money, other times they’ll lend you funds.
Another way is for your parents to go guarantor on your loan.
This way they don't have to hand over any cash but instead they offer the bank additional assurance by putting their property (either their home or an investment property) up as security for your loan.
Of course if you default on your loan, as guarantors your parents will be responsible for paying back your debt.
Myth 3. I'm single - the banks won't lend to me This is another annoying furphy! Banks have been lending to singles since they’ve been around.
Fact is in the old days most families only had one income coming in anyway and there were lots of children to provide for as well.
Whether you’re male or female, lenders will treat your application the same as anyone else’s – plus, the fact that you probably don’t have children is a good thing when it comes to financeand surplus cashflow.
Myth 4 . Banks won't lend to small business owners
Ditto, with small business owners.
Lenders are prepared to approve loan applications for the large number of Australians who have taken their financial futures into their own hands.
Small business owners will have to provide two years of financials but most borrowers probably don’t want to take on more debt until their business has some longevity anyway.
Myth 5. Lenders’ Mortgage Insurance protects me
One of the big causes of confusion out there in lending land is that Lenders Mortgage Insurance (LMI) somehow protects the borrower. Just look at its name - "Lender's" Insurance - not "Borrower's insurance.” Part of the confusion might be because the borrowers (you) pays for LMI, which ultimately safeguards the bank against a borrower defaulting on their repayments. In Australia, LMI is necessary for all property loans that have a loan-to-value ratio of greater than 80 per cent, and that means that first home buyers usually have to pay it because of their smaller deposits. The one good thing about it is that first-timers don’t have to pay for it upfront.
Rather they can capitalise, or add, it onto their property loan.
Myth 6. My bank will look after me and give me the best mortgage deal
The recent Hayne's Royal Commission into Banking put this myth to rest when it found that banks often put their own interests before their customers
The days of having the same bank for your whole life are behind us – it’s just that many people haven’t caught up yet.
Not only is Australia’s banking sector robust, it is also very competitive, which means plenty of opportunities for great deals for borrowers. Alas, far too many first home buyers go straight to the bank they opened an account with when they were at high school and had a part-time job at McDonalds.
What they should have done was think strategically about which loan products suited them best and which banks would give them the best deal.
Today, savvy investors have a number of different lenders at the same time and review each one on a regular basis.
Plus, they’re not afraid to jump ship if a better offer is available elsewhere.
Buying your first property is rightly a big moment in your life.
It should be a time of celebration because of what you have achieved.
What it shouldn’t be is confusing, which is why the savviest of first-timers focus on the facts and ignore the myriad myths that are still out there.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.