A Home of Your Own

Notebook Magazine, 1 April 2008

Kate de Brito, Money

Buying your first home today can seem impossibly difficult. Kate de Brito asks new home owners how they chose the perfect loan for their needs.

Stephanie Jacques

At only 24, Stephanie is a poster girl for young home buyers. Just a year out of the university, she already owns her own chic Sydney apartment. Now a full-time social worker, Stephanie believes if she can get a foot in the door of Australia's most expensive real estate market, anyone can.

Stephanie credits her success to savvy research on the internet. She says she spent months researching the best options and asked "lots of stupid questions" until she understood the ins and outs of most mortgages. "I wouldn't have considered myself financially minded in the past, but I did a lot of reading and asked lots of questions and little by little found out the things I needed to know," she says.

But before she looked at home loans, Stephanie considered where she wanted to buy and what she might be able to afford to get an idea of how much she would need to borrow. "I would have liked to buy around Oatley [Sydney], which is where I grew up and my parents live. In the end, I looked at apartments in Roselands because there's been a lot o growth in terms of unit blocks, and there was a lot available in the price range," she explains.

Straight out of university and working in her first full-time job, Stephanie had just $4,000 in savings to put towards a mortgage. Her local bank manager and another major lender told her she could expect to borrow about $200,000 on her income. Stephanie was also able to add the Federal Government's $7,000 first home owner grant to boost her deposit. "I thought I'd be looking at a 100 per cent loan, but as time went on, I realised I could knock it down to a 95 per cent loan."

This smaller loan also reduced the lenders' insurance Stephanie had to pay and brought down the overall amount she had to borrow. And because she was looking at properties priced under $500,000 and was buying for the first time, she was also exempt from stamp duty. "I spent quite a lot of time looking at different loan options on the internet," says Stephanie. "I used the Cannex website to compare different home loans."

Initially tempted to use a mortgage broker for a convenience, further research convinced Stephanie she had the skills to do it on her own. "I also thought I'd find it difficult to have someone choosing something on my behalf without knowing all the options," she explains.

Stephanie researched home loans for three months before looking at any apartments. Then, she simply turned on the computer and viewed hundreds of units on real estate websites. In the end she only had to leave her desk to physically view four apartments. "You can do virtual tours now, so you don't have to go and view all of them. You can see which ones have what you are looking for," she says.

Next, Stephanie drew up a budget to work out exactly how much she could afford to pay if interest rates continued to increase. She factored in another two per cent in rate rises – or about eight interest rate rises- figuring if I went beyond that, she would probably be earning more by that stage and would be able to pay those higher costs.

When Stephanie was finally ready to borrow, she chose online lender QuickDirect, which is funded by ING. Initially she spoke to a phone operator, asking lots of questions, but the rest of the process was done online. "That's what keeps costs down – there are no brokers, no offices to go into." She says.

The interest rate was lower than those being touted by major banks, plus she had no application fees or valuation fees. She chose a variable rate as it was lower than the fixed rate, and because she knew she could service the loan should rates increase. Stephanie also made sure her loan enabled her to make additional repayments; had a free redraw facility; no ongoing fees; and free internet and phone banking. Fees would only apply if she sold the unit within five years and these decreased every year she held on to the property.

To cap off her savings, Stephanie found a conveyancer specialising in online applications who did the legal work for a flat $990 fee. "I'm happy with the way I've done it." says Stephanie. "I think some people are initially unsure about online loans, but after doing the research I'm certain I got the best deal."