Lenders mortgage insurance lurks
Q: I am saving to buy my first home and heard the Government has increased the First Home Owners Grant by $5000, but only for this year. Should I buy before December 31? Anthony, Subiaco
A: While it’s true that the WA Government has increased the amount of the First Home Owners Grant from $10,000 to $15,000 for the 2017 calendar year, you still need to consider your circumstances before rushing to buy.
The overall amount you have saved will determine whether it is worth purchasing in 2017.
While lenders will loan up to 95 per cent of a property’s value, if you need to borrow more than 80 per cent of the value, you will need to pay lenders mortgage insurance (LMI), which is basically an insurance to cover the lender if you default on the loan.
They get the insurance but you pay the premium!
For example, if you want to buy an $800,000 property but only have a deposit of $140,000 saved (which is under the 20 per cent minimum of $160,000) you would face a LMI premium of $6864.
So you would actually be better off waiting until next year, saving another $10,000 to get to $150,000 and then get the $10,000 grant, which will be back in effect in 2018.
That way you avoid the LMI and save yourself $1864.
Other factors, like potential property price increases, need to be taken into account, but this example shows you need to consider very carefully before making possibly the biggest investment of your life.