First Home Buyers and Apartments: The Pros and Cons

Why Apartments Appeal to First Home Buyers

For first home buyers in the Eastern Suburbs, apartments often represent an accessible entry point into the property market. With median house prices in suburbs like Randwick, Coogee, and Maroubra continuing to rise, apartments provide an opportunity to own property in desirable locations without the substantial capital required for a detached home.

Apartments typically come with a lower purchase price, which means a smaller deposit is needed to get started. For those working with a first home buyer budget, this can make the difference between entering the market now or waiting several more years to save.

Understanding Your First Home Buyer Eligibility

Before you begin your apartment search, it's important to understand what government schemes and concessions you may qualify for. First home buyers have access to several programs designed to help you purchase sooner:

• First Home Loan Deposit Scheme: Allows eligible buyers to purchase with as little as a 5% deposit without paying Lenders Mortgage Insurance (LMI)
• Regional First Home Buyer Guarantee: Available for properties in certain areas (check current eligibility)
• First Home Owner Grants (FHOG): Financial assistance for eligible first home buyers
• First home buyer stamp duty concessions: Significant savings on stamp duty costs in NSW
• First Home Super Saver Scheme: Allows you to save for your deposit through your superannuation

Your first home buyer eligibility depends on factors including your income, the property price, and whether you've previously owned property. A mortgage broker in Eastern Suburbs Sydney can help you understand which programs apply to your situation.

Low Deposit Options for Apartment Purchases

One of the biggest hurdles for first home buyers is saving a sufficient deposit. Traditionally, lenders prefer a 20% deposit, but several low deposit options are now available:

5% Deposit Options
The First Home Loan Deposit Scheme allows eligible first home buyers to purchase with just a 5% deposit. The government guarantees the difference between your deposit and 20%, meaning you avoid paying LMI, which can save tens of thousands of dollars.

10% Deposit Options
Many lenders offer home loan options with a 10% deposit, though you'll typically need to pay LMI unless you qualify for a guarantee scheme.

Gift Deposit
Some lenders accept a gift deposit from family members, which can be combined with your savings to reach the required deposit amount. This must be a genuine gift, not a loan, and proper documentation is required.

Apartment-Specific Considerations for Your First Home Loan Application

When you apply for a home loan to purchase an apartment, lenders assess additional factors beyond your personal financial position:

Strata Reports and Building Quality
Lenders will scrutinise the strata report to ensure the building is well-maintained and financially sound. Buildings with inadequate sinking funds or major defects may be difficult to finance.

Apartment Size
Studios and very small one-bedroom apartments (typically under 50 square metres) may be considered higher risk by some lenders, potentially affecting your interest rate or borrowing capacity.

Location and Building Height
The suburb and building characteristics can influence lending decisions. Properties in the Eastern Suburbs are generally well-regarded, but specific building issues can still arise.

Choosing Between Variable Interest Rate and Fixed Interest Rate

When structuring your first home loan, you'll need to decide on your interest rate type:

Variable Interest Rate
A variable interest rate fluctuates with market conditions. Benefits include:

• Access to an offset account in most cases
• Redraw facilities to access extra repayments
• Potential interest rate discounts
• Flexibility to make additional repayments without penalty

Fixed Interest Rate
A fixed interest rate remains constant for a set period (typically 1-5 years). This provides:

• Certainty in your repayments for budgeting purposes
• Protection if interest rates rise
• Potential limitations on extra repayments

Many first home buyers choose to split their loan between fixed and variable portions to enjoy benefits of both.

Your First Home Buyer Checklist for Apartments

Before you begin your apartment search, ensure you've completed these essential steps:

1. Review your budget and determine your borrowing capacity
2. Research first home buyer grants and concessions you're eligible for
3. Save your deposit (including costs for stamp duty, conveyancing, and inspections)
4. Gather documents for your first home loan application (payslips, tax returns, bank statements)
5. Obtain pre-approval to understand your budget and strengthen your negotiating position
6. Engage a conveyancer or solicitor
7. Budget for ongoing costs including strata fees, council rates, and insurance

The Pre-Approval Process

Securing pre-approval before attending inspections is a vital step when buying your first home. Pre-approval gives you:

• Clarity on your borrowing capacity
• Confidence when making offers
• A stronger negotiating position with sellers
• Faster settlement times once your offer is accepted

Working with experienced first home buyers specialists can streamline this process and ensure you understand all your home loan options.

Strata Fees and Your Budget

When budgeting for an apartment, remember that strata fees are a significant ongoing cost. These fees cover:

• Building insurance
• Maintenance of common areas
• Sinking fund contributions for major repairs
• Building management costs

In the Eastern Suburbs, quarterly strata fees can range from $1,000 to $3,000 or more, depending on the building's facilities and age. Factor these costs into your first home buyer budget when determining affordability.

Understanding Lenders Mortgage Insurance (LMI)

If you're purchasing with less than a 20% deposit and don't qualify for a government guarantee scheme, you'll likely need to pay Lenders Mortgage Insurance (LMI). This insurance protects the lender if you default on your loan.

LMI can cost anywhere from a few thousand to tens of thousands of dollars, depending on your loan amount and deposit size. While it's an additional cost, it allows you to purchase sooner rather than waiting years to save a larger deposit.

Offset Account and Redraw Facilities

Two features that can help you save on interest over the life of your loan are:

Offset Account
An offset account is a transaction account linked to your home loan. The balance in this account offsets your loan balance, reducing the interest you pay. For example, if you have a $500,000 loan and $20,000 in your offset account, you only pay interest on $480,000.

Redraw Facility
A redraw facility allows you to access extra repayments you've made on your loan. This provides flexibility if you need funds for renovations or unexpected expenses while still reducing your interest burden over time.

Working with Shield Mortgage Brokers

Purchasing your first apartment in the Eastern Suburbs involves many moving parts. From understanding first home buyer stamp duty concessions to comparing home loan options across multiple lenders, the process can feel overwhelming.

Our team at Shield Mortgage Brokers has extensive experience helping first home buyers in suburbs including Randwick, Coogee, Maroubra, and Kensington. We can help you:

• Assess your first home buyer eligibility for government schemes
• Compare home loan options from multiple lenders
• Secure interest rate discounts
• Navigate the first home loan application process
• Obtain pre-approval quickly
• Find suitable low deposit options for your circumstances

As your local mortgage broking specialists, we understand the Eastern Suburbs apartment market and maintain relationships with lenders who are comfortable financing properties in this area.

Purchasing your first home is a significant milestone. With the right preparation, understanding of available home loan options, and professional guidance, you can confidently step onto the property ladder.

Call one of our team or book an appointment at a time that works for you to discuss your apartment purchase and home loan options today.