Buying a first home is an exciting yet challenging journey, especially for young professionals like Sarah and Simon. With Sarah being a third-year doctor and Simon a carpenter, they had unique financial circumstances to consider. This article explores their experience navigating the complex process of securing a pre-approval, focusing on the specific options available for first home loans for doctors. By leveraging Sarah’s medical profession benefits and family support, they were able to achieve their dream of homeownership. Read on to discover how they maximised their borrowing power and avoided additional costs to make their first home purchase a reality.
The Scenario
Sarah is a 3rd year doctor at a hospital and Simon is a carpenter working for a building company. They have $60,000 in savings and wanted to buy an established property in the outer suburbs of Melbourne as a first home.
Sarah’s base income was $95,000 gross pa but as is typical for doctors working in the hospital system, she does overtime and she receives allowances and penalty rates based on the shifts she works so that when we annualised her year to date income she was on track to earn $135,000 gross pa for the current year.
Simon’s income was more straightforward. His base salary was $86,500 gross pa and he received no allowances.
Sarah has a HECS debt ($48,000 owing) and they have 2 credit cards with limits totalling $16,000. There are no dependents. Basic living expenses are $4,750 pm with private health insurance costing $180 pm.
How much can they borrow?
How much a bank will lend the couple will in this case largely depend on how the banks treat Sarah’s income. Using just her base salary, their borrowing capacity is around $670,000. However a number of banks will be prepared to look at Sarah’s overall income and use the annualised income figure meaning their max borrowing capacity is around $900,000.
What is their max purchase price?
While Sarah and Simon can afford a loan of up to $900,000 (according to the banks), the size of Sarah and Simon’s deposit is holding down their max purchase price as the loan cannot be more than 95% of the purchase price.
Fortunately for them, as Sarah is a doctor she can get a loan without needing to pay Lenders Mortgage Insurance (LMI) saving them over $25,000 in costs which allows them to reach a higher purchase price then they otherwise could.
If LMI is payable the max purchase price would be $620,000 with a loan of $582,000. However with an LMI waiver then the max purchase price rises to $690,000 with a loan of $655,500.
The couple felt that the maximum purchase price was limiting and they ideally wanted to be able to buy a property in the $800,000 -$900,000 price range. We looked at what would be needed to achieve this.
Borrowing power was not the problem. They could buy in this price range if they could:
- Increase the funds they have available to $100,000 ($40,000 more) which could be done by further saving or a gift from family
- A family guarantee
The couple advised that with the help of family they could increase the funds available to this level. So we were able to look at a pre-approval to buy for up to $900,000.
Outcome
Ultimately we were able to help the client to achieve their goal to buy a first home. The keys were to be able to maximise their borrowing power, avoid incurring LMI and it helped that family could lend a hand too.
If you are a medical professional considering buying your first home or borrowing money for another property acquisition we would love to hear from you.
