Buying Your First Home APESMA. Christopher Fagan Scholten Collins McKissock Authorised Representative Godfrey Pembroke Limited

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1 Buying Your First Home APESMA Christopher Fagan Scholten Collins McKissock Authorised Representative Godfrey Pembroke Limited

2 Important Notice This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product. Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns. This presentation is produced solely as an information service without assuming a duty of care. It MUST not be distributed to third parties. This presentation is based on information considered to be reliable. Opinions constitute our judgement at the time of issue and are subject to change. Neither Godfrey Pembroke or any of the National Australia Group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this presentation. Scholten Financial Services Pty. Ltd. ABN , 731 Whitehorse Rd, Mont Albert 3127 is an Authorised Representative of Godfrey Pembroke Limited ABN , (AFSL number ), 105 Miller Street North Sydney, an Australian Financial Services licensee. From time to time Godfrey Pembroke, members of the National Australia Group of companies, associated employees or agents may have an interest in or receive monetary or other benefits from the financial products and services mentioned in this document/presentation. Godfrey Pembroke Limited is associated with issuers of MLC Limited and MLC Life and National Australia Bank products. 2

3 Godfrey Pembroke Doncaster GPL Doncaster 5 advisers (Certified Financial Planners) Matthew Scholten, Neil McKissock, Trent Collins, Michael Andrewes, Christopher Fagan. Long established financial planning business (1986). Specialists in investment, superannuation (including self managed superannuation), retirement planning, salary packaging, debt management, life insurance, estate planning and expatriate financial planning. Principal member of the FPA. Part of a large multinational financial institution (Godfrey Pembroke is a subsidiary of MLC / NAB).

4 Topics Saving for a Deposit First Home Buyers Savings Account Home Loan Approval Process First Home Buyers Grant Stamp Duty Charges Identifying Properties Prior to purchase Auction/Private Sale - Signing the Contact of Sale Settlement Day Mortgage Insurance Income Protection Loan Structures Fixed v s Variable 4

5 Saving for a Deposit Budgeting - Create a budget and stick to it!!! - Start a monthly savings plan (min $200+ per month). - Time Frame a) 0-5yrs invest in cash/fixed interest b) 5+ yrs include growth assets Monthly Savings Plan (Dollar cost Averaging) $500 per month earning 7% interest. In five years time this will be $34, $1,000 per month earning 7% interest. In five years time this will be $69,

6 Dollar cost averaging A dollar cost averaging strategy means that a set amount of money is invested in an asset each month regardless of the unit price. It takes the guesswork and emotion out of picking the right time to buy and sell assets. Dollar Cost Averaging Regular periodic investing - monthly/quarterly Not reliant on market timing Take advantage of market volatility Ideal investment strategy if you have a regular income and no large sum to invest Are there any other options?

7 First Home Buyers Savings Account Offer a tax-effective way of saving for your first home through a combination of government contributions and low taxes. Eligibility You need to understand the separate rules for eligibility to: open an account make contributions receive the government contribution access your funds. The government will make a contribution equal to 17% of your personal contributions for the financial year, up to a maximum. For example, for each dollar you put into your account between 1 July 2011 and 30 June 2012, the government will contribute 17 cents, up to a maximum of $1,020. So the first $6,000 you put into your account in the income year will attract a government contribution. Any amount over $6,000 will not.

8 First Home Buyers Savings Account Opening an account Banks, building societies, credit unions, life-insurance companies, friendly societies and trustees of public-offer super funds can all offer first home saver accounts. Eligibility to access your funds You contributed at least $1,000 per year to your account in at least four financial years - the 'four-year rule'. Your account balance is no greater than the $90,000 (indexed) and you satisfy the four year rule You are building or purchasing a home with another first home saver account holder who is eligible to access their funds. You built or bought your home before meeting the four-year rule but you have met your minimum qualifying period. You turn 60 years of age.

9 First Home Buyers Savings Account Losing your eligibility You are no longer eligible to hold a first home saver account if one of the following applies: You take ownership of a home before making the minimum contribution over four years and you don't advise ATO within 30 days. You turn 65 years of age. Funds will be paid into your superannuation fund. Pro s & Con s If a new home is purchased prior to 4 yr rule, the funds would previously be transferred to superannuation. For new accounts from May 2011 funds can be used to reduce the mortgage provided the funds remain in the structure for 4 years. Different providers offer different investment options. Please seek advice prior to opening an account.

10 Home Loan Approval Process Before you start looking for a property it is important that you receive preapproval. Meet with your bank, mortgage broker, or adviser to discuss your budget and to go through the pre-approval application process. Note: It is important that you have all your financial arrangements in order. Pre approval can be arranged via our office at not cost to you. GOAL To determine the amount of money you can/wish to borrow and receive preapproval. Pre-approval is normally for a 12 month period. Pre-approval will allow you to bid or place an offer on a property.

11 First Home Buyers Grant The First Home Owner Grant (the grant) scheme was established to encourage and assist home ownership and to offset the effect of the GST on home ownership. The grant is not means-tested nor is it restricted by the price of the property for contracts entered into. The State Revenue Office (SRO) administers the grant with the help of a number of banks and lending institutions that are approved agents.

12 First Home Buyers Grant A payment of up to $7000 is payable to eligible first home owners. To be eligible to receive the grant, the SRO must be satisfied that: You and your spouse/partner have not received a grant in any State or Territory of Australia. You and your spouse/partner must not have owned residential property, either jointly, separately or with some other person prior to 1 July 2000, in any State or Territory of Australia. You and your spouse/partner must not have occupied for a continuous period of at least 6 months, a residential property in which either of you acquired a relevant interest on or after 1 July 2000 in any State or Territory of Australia. You must be a natural person (not a company) and at least 18 years of age at the time of settlement or completion of construction.

13 First Home Buyer Duty Concession What is the Duty Concession? The Duty Concession is a concessional rate of duty on the purchase of a property by a First Home Buyer. There are two types of concession available. The first relates to the purchase of established dwellings and the second relates to the purchase of land on which a dwelling is subsequently erected under a comprehensive home building contract by a builder or an owner builder. A concession of up to a maximum of $4 000 will be applied to the purchase of established dwellings up to a dutiable value of $ The maximum concession available in relation to the purchase of vacant land is $2 400, providing the dutiable value of the vacant land does not exceed $ Not available for an investment property

14 Tasmania Stamp Duty Value of the property (including chattels) Duty payable $ $1 675 plus $3 for every $100, or part, by which the dutiable value exceeds $75,000 $ $3 925 plus $3.50 for every $100, or part, by which the dutiable value exceeds $150,000 Over $ $6 550 plus $4 for every $100, or part, by which the dutiable value exceeds $ Example: Purchase Price - $550,000 Stamp Duty - $19,550 14

15 Identifying potential properties Start by searching on the below websites the locations and price ranges you are interested in. If you need assistance you can utilise the services of a property consultant. They can assist with property selection and acquisition (for a fee). Once you have identified potential properties its time to visit them (open for inspections). I suggest that you take someone with you, a friend or relative. 15

16 Open for Inspection. At the open for inspection you will be greeted by the agent. They will take down your contact number and . Upon entering the property take your time to visit every room. Take photo s and think about the positives and negatives about the property. I normally take a note pad and write my thoughts down!! Ask the agent any questions you have. If you are interested in the property request a copy of the Section 32.

17 Identifying potential properties Section 32 Is the vendor (sellers) Statement to the purchaser of real estate pursuant to Section 32 of the Sale of Land Act Detail Statutory warnings to the purchaser Vendor s details Information regarding building permits issued in the past 7 years Particulars of any mortgages or charges over the land. Information regarding covenants, easements and any other restrictions on title (whether or not they appear on the title) Planning information, particularly where zoning restricts land use Information regarding outgoings payable by the owner of the property (Body Corp) Disclosure of any notices or orders issued by the authorities, regarding fencing, roadwidening, sewerage etc... Information on services connected to the property 17

18 Identifying potential properties Tips and Traps Introduce yourself to the agents and speak with them about the property you are visiting and other types of properties you are after. Make them do some work for you!! Remember the agent is acting on behalf of the vendor (seller) be cautious with what they say. Send the Section 32 to your solicitor to review it for you. You don't want to miss anything!! 18

19 Prior to Purchasing a Property Inspections (Property, Building and Pest) Prices range from $250 - $1,

20 Auction/Private Sale There are a number of ways to purchase a property. The main two are via an auction and via private sale. An auction is where the winning bidder (once the property is placed on the market by the auctioneer is legally bound to have purchased the property. A Private sale is where you put in an offer for a property. The vendor can either accept or reject your offer. A 10% deposit is required at auction or with the private sale offer. Tips Go to a number of auctions prior to bidding at one. Attend the auctions that are run by the agents in your desired area. This will allow you to understand the format and running of an auction.

21 Auction/Private Sale Settlement period is agreed upon either prior to or upon signing of contracts. This is usually 30,60,90 or 120 days. It can be more or less as agreed upon by Vendor and Purchaser.

22 Settlement Day Prior to settlement day (1-3 days) you will be allowed to view the property. This will allow you to determine if the property as been left in the appropriate manner. If not, you should immediately discuss the issue/s will the agent and your solicitor. Arrange for Gas, Water and Electricity connections. Your solicitor will organise for the settlement time and will instruct you to whom and how many banks cheques are required. You will receive confirmation of settlement from your solicitor where you can visit the real estate agent a collect your keys.

23 Mortgage Insurance Traditionally, lenders require borrowers to have at least a 20% deposit. However, by using mortgage insurance lenders are able to offer lower deposits for home loans. TRAP Stamp Duty and other charges need to be paid in addition to the 20% deposit to avoid having to purchase mortgage insurance. Mortgage insurance is not income protection insurance. Mortgage insurance is a cost for borrowing more than 80% of a property. 23

24 What if sickness or injury stopped you from earning an income? Could you continue repayments on the mortgage? What about other debts, such as credit cards or personal loans? How would you pay the bills - electricity, gas, food, telephone and so on? What about additional expenses you may incur - such as medical costs, housekeeping and child care? If you have your own business, could you keep it operational? 24

25 Income Protection Insurance. Income Protection Insurance offers affordable, tax deductible peace of mind: Replace up to 75% of your income should you be unable to work due to sickness or injury Tax deductible premium Proportionate benefit payable for part time return to work Choice of benefit periods and waiting periods Large range of additional benefits available Can have via superannuation to reduce the impact on cashflow from a premium cost perspective. 25

26 Variable v s Fixed Home Loans Variable Home Loans Interest rate will fluctuate depending on the RBA interest rate and the institution used to borrow the money. Provide flexibility to pay additional funds to reduce debt. Must be able to budget for an increase in interest rates. (normally 3% buffer)variable Home Loans Fixed Home Loans Interest will be fixed for the term of the loan. Normally there are restrictions on reducing the debt with lump sum repayments. Will normally be a higher rate than the variable rate. This means you will pay a premium at the beginning hoping that interest rates will rise above your fixed rate in the future.

27 Variable v s Fixed Home Loans Which loan is best? Depends on your personal situation. If you would like the security of knowing the interest rate for a period of time (say 5 years) then perhaps look to lock in some of the loan on a fixed rate.

28 APESMA Members Arrangements Subsidised costs for the preparation of written financial advice (Statement of Advice). Pre-approval can be arranged via our office at no cost to you. Contact Christopher Fagan Trent Collins Phone(03)

29 Selecting your financial adviser Financial Services License? Areas of expertise? How are they paid? Member of the FPA? Source of research? Professional qualifications? Practical experience? Professional Indemnity Insurance?

30 Questions? Christopher Fagan & Trent Collins Scholten Collins McKissock Authorised Representative Godfrey Pembroke Limited