Welcome to our Ask The Expert column where we answer your questions.

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A: While the Boost has certain eligibility criteria, basically if you are eligible for the First Home Owner Grant ("FHOG"), you are eligible for the Boost. The starting point therefore is to determine whether you are eligible for the FHOG. To be eligible for the FHOG (among other criteria) - "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." Because your partner acquired a relevant interest and lived in the property for more than 6 months, you would be excluded from both the FHOG and the Boost. You can check your eligibility on our first home buyer grants and concessions page.

Q: PH writes: What is the minimum amount I need to save for a deposit? I have heard it's as low as 3% which would get me into my first property pretty soon. Also, how can I avoid paying Lenders Mortgage Insurance?

A: The minimum deposit amount you'll need depends in part, on which lender you go with. A number of the major lenders have tightened their lending criteria setting their maximum loan to to value ratio at 90%, although most will go to a higher loan to value ratio (as high as 97%) if you're an existing customer with a good credit history. The ratio can be inclusive or exclusive of Lenders Mortgage Insurance ("LMI").

It's a good idea to try and save at least a 10% deposit because not only will that provide you with a decent equity ownership in your property, but will also save you interest (because you've borrowed less), reduce other costs (like LMI) and enhance your chances of getting your loan approved (because it will improve your risk profile in the eyes of your lender).

LMI is normally payable when the amount borrowed exceeds 80% of the property value. To avoid paying LMI you could consider:

• Putting down a deposit of at least 20% of the property's value.
• Buying a lesser value property so that what you have saved is equivalent to a 20% deposit. This would only really work if you are able to save a decent amount in cash terms. For example, a $30,000 deposit would equate to a $150,000 property whereas a $50,000 deposit would equate to a $250,000 property.
• Borrow from family to make up the deposit shortfall
• Delay purchasing until you have saved up for a 20% deposit.
• If you're a single purchaser, buy with a partner to save costs and (hopefully) increase the combined deposit amount. However, there are some risks to this strategy - refer our article Buying property with a partner
• Some lenders will take s guarantee from a family member equivalent to the deposit shortfall. So for example, a 20% deposit on a property worth $300,000 would be $60,000. If you only had a 10% deposit of $30,000, the bank may take a guarantee on the remaining $30,000. The downside to this would be that the guarantor would be liable for an amount up to $30,000 if the property was sold and proceeds were insufficient to pay out the home loan

It would be a good idea to shop around and speak to a number of lenders (which you can do via our home loans page)

Q: BA writes: I am looking for my first home loan and am having trouble finding the right loan. How should I proceed?

A: With so many different lenders and home loan products on the market it's not surprising you may be unsure of the best way to proceed. When choosing a home loan there are many things to consider. Most people focus on the interest rate and other loan costs which is a good starting point. But you should also weigh up other things like product type and features as well as being mindful of your personal and family circumstances. Our article, Which home loan is right for me? will provide you with a good introduction to the major loan products currently available as well as an overview of their advantages and disadvantages.

You should also think about discussing your needs with your lender before signing on the dotted line or talking to an independent home loan specialist. Both these options are available at Top Choice Home Loans. You can arrange to speak with one of our lender panel banks, or Full Service Option.

Q: A reader asks: I am a first home buyer. If I buy an investment property first and then say, 6 to 8 months later buy my first home to live in, will I still qualify for the First Home Owner Grant? Are there any restrictions?

A: To be eligible for the First Home Owners Grant you must meet at least the following criteria (there are other criteria in relation to the property):

• You and your spouse/partner must not have 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.
• You (or at least one applicant) must be a permanent resident or Australian citizen at the time of settlement or completion of construction of the home.
• You (or at least one applicant) must occupy the home as your/their principal place of residence for a continuous period of at least 6 months, commencing within 12 months of either settlement or completion of construction.

This means you can buy an investment property first and your home to live in afterwards, providing you and your spouse or partner don't occupy the investment property for a continuous period of at least 6 months. Similar restrictions would apply to the Boost, but remember the Boost is due to be scrapped after 31 December 2009.

However, you need to check how buying an investment property first might affect your eligibility for State and Territory based grants and concessions. Each State and Territory has its own rules and requirements governing things like stamp duty concessions so it's important to work out first what the implications are before entering into any contracts to buy.

To learn more about your eligibility, go to our grants and concessions page, contact one of our conveyancing partner experts or speak with your state revenue office.

Q: NT writes: There are few non-bank home loan lenders who are offering competitive interest rates and have maintained good ratings and profile due to their product features. How safe it is to borrow money from lenders who source funds mostly from major banks? For example, if the lender goes out of business or is taken over by other company then what are the options available to the borrowers in terms of interest rates, terms and conditions and service? Are the borrowers bound to accept the new lenders with their new terms and conditions including their rate of interest and features? And does the borrower have the choice or legal right to change the lender to refinance without penalty (exit fees/break cost)?

A: This is an interesting question given today's financial market. With the buying and selling of banks, financial institutions and loan portfolios, many borrowers may be wondering what would happen to them if their lender was taken over or sold their loan books to a someone else.

Stephen Moulton, legal Partner at PricewaterhouseCoopers advises that no party stepping into the shoes of the lender can gain any better rights than the original lender - they will be bound by the terms of the original contract. So your original rights and obligations will move across to the new lender unless you sign a new contract with the new lender. In addition, the (proposed) new National Consumer Credit legislation will make conduct such as raising interest rates beyond commercial levels more difficult.

Similarly, if a lender runs out of money and a liquidator is appointed, the liquidator's ability to demand immediate repayment of principal will be determined by the terms of the loan agreement. In most cases, unless there is a default on the part of the borrower, there should be no right to seek repayment earlier than the end of the contract.

As always, if you're unsure about how a change of lender might affect you, seek independent legal advice.

Q: LB writes: My partner and I want to buy a property together, but know we won't both be able to claim the First Home Owner Grant if we do so. Would it be better to buy separate properties of lesser value (new apartments in the same development for example) so we can get the full advantage of the Grant?

A: This is a tricky question. Buying a property in your own name may enable each of you to apply for the grant assuming you individually meet the eligibility criteria. (Check out our grants and concessions section for more information). To be sure, you really need to seek independent advice from a conveyancer or lawyer before heading down this road.

There are however, other things to think about. For example, if you need to borrow to purchase, your lender will have to assess you on your individual capacity to meet your monthly repayments. Can you afford to buy a reasonable property on one income? You need to be clear on your objectives for buying a property - buying two properties just to get two grants is probably not a good idea on its own.

Q: I've read that banks are making it harder for first home buyers to borrow, but I also think I should still push for a good deal on my mortgage. Are there still good deals to be done? And how hard should I push for a bargain and will that risk them not giving me a loan at all?

A: The good news is that home loan affordability is at its highest level for many years. The bad news is that the major banks are tightening up on their lending criteria. They've removed some products that they consider too risky in the present environment, are taking a closer look at people's ability to meet their monthly repayments and are expecting new home buyers to contribute a minimum of between 3% and 10% of their own funds towards the property's purchase price.

Having said this, there are some great home loan deals out in the market (check out our home loans section). If you have a good financial track record, have a good employment history and can contribute a reasonable deposit then you are in a strong position to secure a competitive home loan product. It's OK to push for the best home loan deal, but be reasonable and courteous in your negotiations, with particular regard to your own personal circumstances. We've got some useful tips in our articles section and How to guides section that will help you get your mortgage and negotiate with the banks.

Q: TB writes: I signed up for a fixed rate mortgage about nine months ago when it seemed rates would remain high. Should I consider changing to a variable rate loan now that interest rates are falling?

A: Fixed rate mortgages were popular around the time you took out your loan. In fact, the Australian Bureau of Statistics reports that almost 75,000 Australians took out a fixed rate loan between January and October 2008, but their popularity has dropped off significantly as variable rate interest rates have fallen.

This means that you, along with thousands of other borrowers, are probably paying significantly more on your fixed rate loan than you would be if you'd opted for a variable rate loan, and understandably, you want to do something about it.

Unfortunately switching or refinancing your loan is not a simple or pain-free process. It costs your lender money to break a fixed rate loan and these costs will be passed on to you in the form of an exit fee. This fee is used to compensate the lender for the difference between the interest you would have paid to the lender and the prevailing rate - otherwise known as the 'economic cost'. This can be a complex calculation. The bigger the gap between the two, the higher the fee will be. In fact, this fee can amount to tens of thousands of dollars, depending on how much you've borrowed and the unexpired term of your fixed rate loan.

So before taking any action, you must work out how much your break fee will cost you (together with any other exit fees your lender may charge plus any upfront fees and costs for the new loan) and offset this against any interest you'll save through paying a lower rate. You also need to work out how long it will take to recoup your break fee and other costs. You may find it could take years to see any real savings meaning it might be better to revert to a variable rate loan once your fixed rate term comes to an end.

Q: HB writes: I am self employed but only have one year's worth of tax returns. I'm worried with lenders tightening up the availability of finance I won't get a mortgage. What should I do?

A: Most lenders offer low documentation or 'low-doc' loans specifically designed for the self-employed that are unable to provide traditional forms of proof of income.

Lenders will want to satisfy themselves that you are a good credit risk and that you'll be able to meet your home loan repayments.

You should to speak to a few lenders to find out what types of loans are available to you and what documentation they need for a successful loan application. One year's tax return may not be sufficient and they may ask you to get an accountant to provide a 'statement of income' for the period after your latest tax return. They may also look at how you've serviced other financial commitments like a car loan or credit cards as well as your savings habits.

Speak to one of our partner bank's home loan experts to find out what home loan products are available to you.

Q: DV from Sydney asks: I'm ready to make an offer on a property. Will the First Home Owner Grant be available to me and how can I make sure it will count towards my deposit?

A: It's great that you've found a property and are ready to make an offer. If you haven't already done so, you need to check your eligibility for the First Home Owners Grant ("FHOG") and the First Home Owner Boost ("FHOB"). These schemes could provide you with either $14,000 or $21,000 to put towards your home purchase, depending on whether the home you've found is an existing or a new property.

The FHOG and FHOB grants are not normally available at the time you need to pay a deposit (for example, when you exchange contracts) but they can be taken into account when it comes time to settle on your home (when you pay the remaining balance owning which normally occurs 30 to 90 days after exchange of contracts).

The date the grants are paid depend on whether you are building or buying and whether you are applying through an approved agent (for example, your lender) or direct to the State Revenue Office. The quickest way to receive payment is to apply through an approved agent.

Typically, if you are buying a new, established or off the plan home, payment will be made on settlement to your approved agent. This means you'll need to come up with the deposit from your own resources - through savings or other means. It's a good idea to check with your lender and legal advisor to work out when and how the grants will be paid.

To check your eligibility, and learn more about the grant schemes, as well as identify other concessions that may be available to you, visit our Grants and concessions page.

Q: TR from Melbourne asks: What are the benefits of an interest only loan and how do you actually pay off the loan amount? A: With interest only loans you only need to pay back interest each month, whereas with a traditional amortising loan you will pay interest and some principal back in each monthly payment. Interest only loans are normally available for up to five year terms, although longer terms may be available depending on the lender.

They work something like this. Say you'vetaken out a 25 year $300,000 loan which is interest only for the first fiveyearsat an interest rate of 7.65%. You would pay $22,950 in interest each year or $114,750 over the fiveyearperiod. Contrast this with an amortising loan where your annual payments would be $26,956 or 134,780 over 5 years. As you can see, you would save yourself $4,006 per annumor$20,030 over the first five years. The downside is that you have not reduced your loan or built up any equity in your property. At the end of the first 5 years, under an interest only loan you would still owe $300,000 whereas with an amortising loan, your principal would have reduced to $275,693 and you would have built up $24,307 equity. Check out our Principal and interest calculator to learn how an amortising loan works.

There are pros and cons to entering into an interest only loan and I've set out some of them below:

Pros

• Smaller monthly payments - might be helpful if your income is variable
• Money saved can be used for other purposes
• You can customise your repayments schedules - make payments against principal when you have money
• They may enhance negative gearing tax benefits for property investors and developers

Cons

• You aren't building equity in your property - you're really treading water until you start paying off some principal and you're relying on house price increases to build equity
• There is more risk - if house prices fall you may find yourself in negative equity territory
• Your monthly repayments may increase at the end of the fixed rate period

Eventually you have to pay back the principal on an interest only loan. This can be done by selling the property, making lump sum capital repayments or refinancing the loan. Always think carefully about whether an interest only loan is right for you and seek independent financial advice if you're not sure.