If you're a first home buyer or new to the real estate scene, you'll no doubt start hearing terminology that sounds like a foreign language. From 'Section 32' to 'lenders mortgage insurance', industry experts may forget to clue you in on what these terms mean and how they will impact your sale.
To save you from having to quietly Google each word as it arises, we decided to take the lead and teach you 20 key phrases you need to know. Familiarity with these terms will help you understand the language that real estate agents, mortgage brokers and banks will use throughout your first homeownership journey.
And after that? Knowledge is power, baby. Before you know it, you'll be skimming through the pages of the Australian Financial Review while you eat breakfast in your dream home, planning your next big move on the property ladder.
Appraisal
An appraisal is an estimate of a property's value in the current market. Appraisals take into account things like property size, location, number of bedrooms, fixtures and fittings, and are often performed by real estate agents for free.
Note: an appraisal is different from a property valuation, which is a written report prepared by a professional, who will often charge a cost for this service.
Borrowing Capacity
The amount of money that a bank or other lender will loan to you. There are plenty of things that factor into your borrowing capacity – existing loans, annual salary, monthly expenses, if you're buying alone or as a couple etc. Check out our Borrowing Power Calculator for an estimate on how much a bank or lender might allow you to borrow.
Contract of sale
The legally binding agreement between you (the buyer) and the owner of the property (the vendor). This document usually contains:
- Names and addresses of the vendor and the buyer
- Settlement details – including the date you can move in
- Conditions of the sale
- A list of inclusions in the sale such as fixtures and fittings
- Deposit amount
- The sale price
As with any legal document, you should get the contract of sale reviewed by a property conveyancer (see below) or lawyer.
Conveyancer
A legal professional who offers expert advice when it comes to property transactions. Conveyancers can help you when you're buying a property, selling a property, transferring property or subdividing property. They're property market experts who will help get you into your own home.
For more information on conveyancers and conveyancing, check out our article here.
Equity
Put simply; the equity is the portion of the home that you own – not the bank. It's the difference between what you still owe to your bank or lender and how much your property is worth.
First home-owner grant (FHOG)
A scheme introduced by the Australian government in 2000. The grant varies depending on which state you live in as your state government decides the amount; however, it's usually a one-off payment to assist eligible first home buyers in purchasing a property and breaking into the market. Make sure you read up on what stamp duty concessions you can claim, too!
Click on the appropriate state to be redirected to your state revenue office site to find out more information about the first home-owner grant:
Fixed-rate home loan
A loan with a locked-in interest rate for a specified time period. These loans can help you with your peace of mind, as during the agreed period your loan repayments will stay the same, regardless of what is happening in the market. Fixed-rate home loans help you to budget your repayments; however, you might lose out if interest rates drop – so it's up to you whether you want to take that risk. Scroll down to learn more about interest rates!
Guarantor
A guarantor is someone who agrees to honour the contract of your loan if you can no longer make your repayments for any reason. This person is 'guaranteeing' they will continue paying the loan in full if something happens to you. It's common for a parent or guardian to agree to be guarantor when you're buying a first home, as it makes lenders more inclined to approve your loan.
House and land package
A bundle that includes both land and the construction of a new home at a fixed price. You will have two contracts to sign – one for the land and one for the house itself. Home and land packages often enable first home buyers to save with confidence as they have a set goal, removing the hassle of battling it out with other first home buyers and investors at auctions.
Initial deposit
A percentage of money that is an initial contribution towards the purchase of the property, securing your purchase. The deposit amount and time in which you must pay it will depend on whether you purchase the home at auction, through a private sale, or if you are entering into a building contract.
Interest rate
A fee percentage that you are charged each repayment for taking out a loan. The lender applies this rate against the unpaid portion of the loan.
For example: If you take out a loan for $500,000 over 25 years with an interest rate of 3%, you will end up paying roughly $210,000 in interest. You can have a play around with how repayments might look with our Interest Only Calculator.
Interest rates are influenced by what the Reserve Bank of Australia charges the commercial banks (e.g. Commonwealth Bank, Westpac, etc.) to take out loans – otherwise known as the 'cash rate'. The commercial banks then use this figure to determine the interest rates for the general public.
Lenders mortgage insurance
Insurance that you are required to pay if your deposit is less than 20% of the total cost of the property. LMI protects the lender if you can no longer meet your mortgage repayments, and it can be paid upfront or added to the value of your loan.
Market value
A professional opinion the value of the property and what it would sell for in a competitive market. There are plenty of things factored in when working out the market value of the home, including:
- Location
- Size
- Floor plan
- Quality
- Type
- Comparable sales
- Supply and demand
Mortgage broker
A home loan expert who can help you through the process of financing a new home. Your mortgage broker will provide professional advice and match you with a loan and interest rate, which suits your needs and financial situation.
To learn more about using a mortgage broker, read this article.
Pre-approval
Pre-approval lets you know the maximum amount you can borrow from a lender, helping to narrow your searches and allowing you to be more confident when talking to agents or salespeople.
You can apply for loan pre-approval with a bank, who can then approve of giving you a loan up to a certain amount. Note that the loan hasn't been officially processed and still needs final approval. It's not a requirement to seek pre-approval, but it might streamline the home-buying process and remove the stress of seeking finance later in the piece.
Section 32
A document provided by the seller which details all the information you need to know about the property. It will include:
- The vendor's details
- A copy of the title
- Information about recent building permits
- Zoning certificates
- Notices of upcoming work
- Rates, strata and other fees
- Easements
If you're struggling to understand the details of Section 32, you should consider engaging a property conveyancer.
Settlement
The final stage of a property sale, where you officially become the legal owner. You will pay the vendor the remainder of the contract price and meet all other clauses in the contract of sale.
Settlement period
The length of time before the property is officially handed over to the buyer. This period is usually between 30 and 90 days, allowing you time to organise financing, paperwork, furniture and anything else on your list. Take a look at our Complete Checklist for First Home Buyers, so you know exactly what you need to buy before moving in.
Stamp duty
A government tax that you need to pay when you buy a property, within 30 days of the settlement date. As a first home buyer, you may be exempt from stamp duty, so make sure you read up on the rules for your state. You'll also save on stamp duty when you choose a home and land package because you only need to pay stamp duty on the land, not the house, which hasn't been built yet.
Variable-rate home loan
A home loan that uses your lender's interest rate to determine the interest paid. This amount will vary as the banks and lenders change their rate in line with the Reserve Bank of Australia's cash rate. While it might seem safer to go with a fixed rate home loan, variable rates often come with extra features. You'll need to rely on a mortgage broker or other expert to help decide what's best for you.
If you’d like to know more about buying your first home, we are here to help. Check out our first home builder resource page, find more advice on our blog or speak to one of our team members today.
