Top tips to buy off-the-plan as first home buyers

Understanding Off-the-Plan Property Purchases

Buying off-the-plan means purchasing a property before construction is complete, often with only architectural plans and marketing materials to guide your decision. For first home buyers in Highton and greater Geelong, this approach can offer several advantages, including potential capital growth during construction and access to first home owner grants (FHOG).

Off-the-plan purchases typically require a deposit of 5-20% of the purchase price, with the balance paid upon completion. This extended timeline can help first time home buyer programs work in your favour, allowing time to save additional funds or improve your financial situation.

Benefits of Off-the-Plan for First Home Buyers

Purchasing off-the-plan can provide numerous benefits for those buying their first home:

• Stamp duty concessions: Many states offer reduced stamp duty for off-the-plan purchases
• Time to save: The construction period allows additional time to build your deposit
• New property advantages: Modern fixtures, energy efficiency, and warranty protection
• Potential growth: Property values may increase during the construction period
• First home buyer incentives: Access to various government schemes and packages

The Home Guarantee Scheme can be particularly valuable for off-the-plan purchases, potentially allowing you to secure your first Home Loan with as little as 5% deposit while avoiding lenders mortgage insurance (LMI).

Financing Off-the-Plan Properties

Securing finance for off-the-plan properties requires careful planning. Most lenders offer specific packages for these purchases, often with different application process requirements compared to established properties.

When applying for a home loan for off-the-plan properties, lenders will assess your borrowing capacity based on current income and expenses. However, the loan amount will be reassessed closer to settlement, which typically occurs 12-24 months after the initial purchase.

It's crucial to get pre-approved before committing to any off-the-plan purchase. Pre-approval provides confidence in your borrowing capacity and demonstrates serious intent to developers. At Mt. Pleasant Financial, we can help you access Home Loan options from banks and lenders across Australia, ensuring you find suitable terms for your off-the-plan purchase.

Interest Rate Considerations

Interest rates can fluctuate between your initial approval and settlement. Consider these options:

1. Variable interest rate: Rates adjust with market conditions, offering flexibility
2. Fixed interest rate: Lock in current rates for a specified period
3. Split loans: Combine fixed and variable portions for balanced protection
4. Interest rate discounts: Many lenders offer promotional rates for first time home buyer schemes

Discuss with your mortgage broker about loan structures that protect against significant rate increases during the construction period.

Managing Loan to Value Ratio (LVR) Risks

The loan to value ratio (LVR) is calculated based on the property's value at settlement, not the original purchase price. If property values decline during construction, your LVR may increase, potentially requiring:

• Additional deposit to meet lending criteria
• Lenders mortgage insurance (LMI) if LVR exceeds 80%
• Revised loan terms or conditions

Regular market monitoring and maintaining flexible savings can help manage these risks.

First Time Home Buyer Programs and Grants

Off-the-plan purchases often qualify for various first time home buyer programs:

• First Home Owner Grant: Specific amounts vary by state
• Stamp duty concessions: Reduced or eliminated for eligible buyers
• Home Guarantee Scheme: Government-backed guarantee reducing deposit requirements
• Shared equity schemes: Government co-investment options

Ensure you understand eligibility criteria and application deadlines, as some grants require applications before settlement.

Settlement Preparation

As settlement approaches, you'll need to provide updated documentation including recent bank statements and income verification. The final loan approval will be based on:

• Current financial situation
• Property valuation at completion
• Any changes to lending criteria
• Updated borrowing capacity assessment

Consider establishing an offset account early to start reducing interest charges once the loan becomes active.

Working with Mortgage Brokers

Mortgage brokers provide valuable support throughout the off-the-plan journey. With access to banks and lenders nationwide, brokers can help you navigate the streamlined application process and identify suitable investment loan options if you're considering future property purchases.

When buying your first home off-the-plan, professional guidance helps ensure you understand all aspects of the purchase and financing arrangements.

Off-the-plan purchases offer unique opportunities for first home buyers in the property market, but require careful planning and professional support. Understanding the application process, managing risks, and utilising available first home buyer programs can help make your off-the-plan purchase successful.

Call one of our team or book an appointment at a time that works for you to discuss your off-the-plan financing options.