HECS and Home Buying – Understanding Your Options.
When you’re in the market for a new home, deciding whether to pay off your HECS debt or boost your down payment is crucial.
There are several strategies to consider
Impact on Borrowing Capacity Take, for instance, an income of $110,000. HECS deductions amount to $7,700 annually from your net income, which can decrease your borrowing ability by up to$86,000. This often necessitates adjustments such as choosing a different suburb or downsizing from a house to a unit, or it might even delay your home buying plans.
Considerations for Your Deposit
As a first home buyer (FHB), you can participate in government programs like the Lenders Mortgage Insurance (LMI) cancellation scheme for properties under certain price thresholds, like $800,000 in NSW. This still requires a minimum of 5% in “genuine” savings. If paying off your HECS could enhance your borrowing power, exploring options for a smaller deposit might be necessary.
Alternative Home Buying Methods
Numerous government initiatives are available, particularly beneficial for first home owners, allowing you to begin with a minimal deposit.
- 100% No Deposit – Family Guarantee: A family member can secure 20% of the home’s purchase price, eliminating the need for LMI and enabling you to buy with no deposit.
- 98% Home Loans: Certain lenders provide 95% loans and capitalise the LMI, requiring just 5% down for loans outside the LMI waiver criteria.
- 95% Home Loans: These offer a lower interest rate than 98% loans for those who can afford a larger deposit.
- Low Deposit High Income Options: A split loan with 80% financed over 30 years and 20% over 15 years with a 2.2% fee, catering to those with lower deposits but higher incomes.
- $0 Stamp Duty: For FHO in NSW, no stamp duty on homes up to $650k, with a graduated scale up to$800k. Other states may offer incentives for new homes only.
- 5% Deposit FHLD No LMI: This government-backed loan allows a 95% loan-to-value ratio, details available at the National Housing Finance and Investment Corporation’s website.
- NSW FHO Equity Share Program: Offers 30-40% equity help by the NSW Government for properties up to $1M, repayable as your income grows, with specific eligibility criteria.
- Rentvesting: Starting with an investment property, leveraging rental income and negative gearing to enhance borrowing power and preserve cash flow. Options include principal and interest or interest-only loans.
Explore these options and see which might fit your situation, and let’s discuss further.
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