First Home Buyers

First home buyers have a special status in the home loan market. In the first place, governments love to see as many first home buyers in the market as possible as this is usually an indication of overall consumer confidence.

Additionally, first home buyers provide the basis for ongoing activity in the building and construction industry, providing a platform for extended long-term economic growth fuelling future retail purchases which every first home buyer needs to make.

That is the reason that governments have a tendency to encourage and support first home buyers with special grants and preferential treatment when it comes to things like stamp duties, application fees and land taxes. The most recent example was experienced during the early days of the global financial crisis when the Federal government introduced extended assistance to first home buyers in an attempt to stimulate the housing market. State governments also chimed in with additional support packages that made it easier for first home buyers to enter the market.

But while first home buyers may be well supported by governments, it is also a fact of life that banks are extremely careful when it comes to approving loans to this class of borrower.

In the main, banks are careful when lending money to first home buyers for the following reasons.

First home buyers generally have a limited track record when it comes to demonstrating their capacity to repay a long-term loan.

Most first-time buyers are in the younger age brackets and will most likely only be able to demonstrate a limited period of employment.

Younger borrowers are generally fairly new to the workforce and will therefore be only earning at the lower end of the salary scale.

Whenever a borrower seeks a loan of more than 80% of the house's value, the bank needs to insure the loan to protect itself, thereby adding to its overall costs.

For these reasons, banks take a more conservative approach and will be far less flexible in their decision-making if all of their lending criteria are not met.

It's easy to understand the bank's position when you consider that first home buyers make up a considerable proportion of the overall home loan market and it would be irresponsible to lend money to borrowers who cannot demonstrate a clear capacity to repay the loan. Younger borrowers have more to prove because of their lack of credit history and employment, so banks have to make a well considered commercial judgement before approving a loan application.

Remember too that banks are in business to make a profit and, whilst they may be keen to lend as much money as possible to home buyers in order to make this profit, certain classes of borrowers like first home buyers, should be treated with caution because, after all is said and done, it is the shareholders to which the bank must ultimately answer.

The banking industry is heavily regulated by governments and there has always been an underpinning belief that banks have a social responsibility to fulfil in all areas of operation including

A responsibility to be a provider of credit so that consumers and businesses alike can attain their financial goals.

A responsibility to act in the manner of a good corporate citizen by not engaging in practices which compromise either shareholders or customers.

A responsibility to be the custodian of the collective wealth of society in a manner which does not compromise any of the cash deposits held on behalf of its customers.

But it is not all bad news for first home borrowers. There are still plenty of banking products that make it as easy as possible to borrow enough money for a first home purchase. It doesn't matter what the economic climate is, the best advice is to get a preapproval from the lender of your choice before you start house hunting. This is the only way you can establish your maximum borrowing capacity and this allows you to set the limit on the house you want to buy.

It is also likely that the preapproval process will reveal all the costs you need to have saved and kept separate from your deposit money. A solicitor can give you a definitive answer to the actual costs involved, as can a mortgage broker. In most situations, however, a mortgage broker will be happy to provide you with the details free of charge whereas a solicitor is likely to charge your professional fee.

It is important to remember that there are thresholds at which government subsidies cut out which may mean that choosing a house that goes over the threshold by just one dollar can result in extra costs in the thousands of dollars!

Read all the information in this section to get a complete picture of the overall requirements before you talk to a bank or mortgage broker. This will ensure that you are even better prepared and can start searching for the house of your dreams with certainty and clarity.

The important part about the process is to think about how your personal circumstances may change over a period of time and then design the loan that will serve those ends and at the same time preserve enough flexibility to make loan management a simple task.

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