Buying a home can be challenging, which is why it helps to have the assistance of qualified professionals looking after things for you.
How can Our Broker can help?
Our Broker can help you compare many mortgages from a range of lenders, whether you're applying for a first home loan, or simply seeking to switch lenders for a better deal.
Also, if you're unsure about your borrowing power, Our Broker can help you choose a home loan you can realistically afford. If you have any questions about your financial situation, it's wise to seek advice from a professional mortgage broker such as Our Broker.
What does a lender look at when you apply for a loan?
Typically, a lender wants to see the last two consecutive payslips, breakdown and evidence of Funds to Complete (3 months of bank statements showing salary credits and savings pattern), 100 points of identification, and if you've found a new home, a contract of sale with names matching your ID.
However, what is important to keep in mind is that all your 'liabilities' requiring regular monthly payments also have a very big impact on the size of the mortgage you can secure.
How do I know which Home Loan is right for me?
There are literally hundreds of home loans available, so when selecting the right mortgage, make sure you choose a product with a competitive interest rate and repayment options that match your needs. Popular home loan categories including variable, fixed rate and split loans.
A variable rate loan is a mortgage which utilises an interest rate that generally moves in line with the cash rate determined by the RBA. So, when interest rates fall, your mortgage repayments fall. However when interest rates rise, so do your repayments.
A fixed interest rate loan protects you against interest rate changes for an agreed time. This delivers some peace of mind as your repayments won't change. However a fixed rate locks you in regardless of whether interest rates go up or down.
Split loans are simply a part fixed and part variable rate mortgage. They are popular with homeowners who want to take an each way bet on interest rates.
What is Stamp Duty?
Stamp Duty is a government tax imposed on contracts, with the amount usually calculated as a percentage of the contract value. In layman's terms, it is the tax charged for your legal documents to be 'stamped'.
It's crucial to factor your State's Stamp Duty into your budget when purchasing a property.
Based on your circumstances and where you live, you might be able to obtain a stamp duty exemption, or concessions (discount) against the purchase of your first home. Stamp duty laws get changed often, so be sure to check your State Government's WEBSITE for the most up-to-date information.
Are you eligible for Government grants?
These vary from State to State, but a government grant is money you could be eligible for and can go towards the costs of buying your first home. E.g. First Home Owner's Grant (FHOG). If you're building your home, there may even be other building grants you can apply for.
You can find information relevant to your State HERE, or contact Our Broker and we can take you through the grants you may be entitled to.
Why do you need a solicitor or conveyancer?
The legalities involved in buying and selling a home are referred to as 'conveyancing.'
Typically conveyancing checks off any outstanding land taxes, will help uncover unresolved property disputes or illegal building work, and ensures the title is correctly changed according to your state's current land title laws. Such issues can be plagued with legal landmines, which is why it is highly recommended that you employ the services of either a solicitor or a licensed conveyancer to handle the process of transferring a property from old owner to new.
Furthermore, a solicitor/conveyancer is covered by professional indemnity insurance. This means you'll be protected from any financial losses should your conveyancer fail to pick up an issue that could affect the value of the property, such as an undesirable neighbourhood development. If you choose a do-it-yourself approach to conveyancing, you do not have this protection and it may cost you thousands of dollars in litigation if an issue arises.
What is Lenders Mortgage Insurance (LMI)?
You'll generally be required by your lender to pay for Lenders' Mortgage Insurance (LMI) if you borrow more than 80% of the value of a property.
LMI protects the lender from the risk associated with giving you a loan that is more than 80% of the property's value. In the event that you default on your mortgage and the proceeds of the sale of your property fail to cover the remaining loan balance, the insurer pays the lender the shortfall. You can have your lender add the LMI fee to your total loan amount or pay it up front.
It's important to know that LMI protects the lender only, not you. It shouldn't be confused with income insurance, which replaces income if you're unable to work, or mortgage protection insurance, which covers your mortgage payments in the case of death, sickness, unemployment or disability.
Do you need Mortgage Insurance?
Although you're not required to have life, critical illness or disability insurance, a mortgage is a large debt and should be life insured, for your family's peace of mind.
What other costs might I incur in the purchase of a property?
While it would be nice to assume that paying the agreed price for a property is all you have to worry about when it comes to buying a home, it's important to know there are other, sometimes hidden, costs as well.
You also need to factor in legal fees of (usually) a couple of thousand dollars, as well as stamp duty and lenders mortgage insurance (if your deposit is less than 20%).
In addition, it's wise to pay for a pest and building inspection to uncover any hidden surprises before you take full ownership of the home, while there can be home loan establishment fees, document preparation fees, and even pro-rata council and water rates payable to the seller.
You can reduce your debt faster by keeping up with or making extra repayments on your loans. You'll save money in interest payments and also ease your financial burden down the track.
If you have more than one credit card or loan, pay off the one with the highest interest rate first to save even more.
Remember though, if you choose a loan at a fixed rate, you may not be able to make extra repayments without incurring extra fees.