Before your appointment have an idea of what your objectives are. People come to see me for different reasons:
Lowest interest rate
Bank taking too long
Consolidating some debt
Wanting some cash for a holiday or renovations
Disappointed with current bank and looking to change
So, figure out what you ideally want to get out of the appointment and your prospective loan.
If you are buying think about the price range and consider how much you are comfortable repaying each week, fortnight or month.
Be prepared with documentation. Refer to Supporting Documents for the sort of items required by your broker and the lender.
You should also refer to Loan Process to gain an understanding of the processes, people and time involved.
Even if you are not ready to buy yet because of too little a deposit, change in personal circumstances or just not sure, it is still worthwhile investing a little bit of time to understand the paths you can take towards being ready for home ownership in the future. Mortgage Planning is one of our areas of expertise – we can sit down with you to analyse the picture now and work out the steps you need to achieve to being ready quickly. This can range from a savings target, expense budgeting, looking at your other debts and the impact of changing jobs. Submit an enquiry and we can set up an appointment.
There are many great tools and guides out there on the internet which explain all the details for buying a house and researching mortgages. For the moment, we will walk through our top 10 things to consider.
Who is involved in the buying process?
Purchaser – i.e. you.
Vendor – The person selling the property you’re looking to buy.
Lender – most likely you will need a home loan to help you buy your first property. This is where a mortgage broker comes in.
Real Estate Agent – representing the vendor, 99% of sales go through them.
Conveyancer – they handle the legal side of things for you. The vendor will likely have one as well. This can be complex, so it is important to find a qualified professional to handle this on your behalf. They can also assist with organising strata reports for units and townhouse purchases.
Building Inspector – although it isn’t a requirement to get a pest & building inspection done most people still rely on them to understand the condition of the property being purchased.
How do I go about getting a home loan?
There are dozens of lenders in the market today. There are two main way of going about this – either direct to the lender, or through a broker.
A very large percentage of people still head straight to the bank they have been with for years. This might be because they got their first piggy bank and savings account with them, or because they are the nearest one. There is often a feeling of reassurance that “my bank will look after me”. In often is not the case, the banks mostly look after themselves first, you second.
The majority of borrowers these days go through a broker. There are countless reasons for doing this (please refer to Why Use A Broker). Ultimately a bank is looking after its bottom line profit. Whilst the loan you get directly or through a broker could be the exact same loan chances are you will pay a higher rate by going direct, without that added competition. The other big upside of going through a broker is that you will be offered choice. A choice of loan features, lenders and price. A choice of where and when you meet. A choice of lenders with extremely quick approval processes to meet tight timelines. Or a choice of lenders that understand your employment situation better.
Regardless of how to go about obtaining your loan it is important that you understand the buying and loan process, have your supporting paperwork ready for a loan application. For instance, attend some auctions to understand how they work. Please follow the links to read more.
If a First Home Buyer loan any different to other home loans?
Basically, no. There are a handful of specific first home buyer loans, but generally speaking the are the same loans everyone can get. Lender policy is the same as well.
As a first home buyer, potentially taking out your first ever financial liability, it is a worthwhile step to seek pre-approval. This takes a lot of risk out of the borrowing process as it means the banks has checked over your financial circumstances. It also shows sellers and real estate agents you are serious, and should allow you to move forward with confidence when you find your perfect home. It gives you confidence – with a pre-approval you will know what the repayments will be and how much you can afford to spend on a property. Pre-approvals are usually valid for 3-6 months.
First Home Owners Grant
Each state has its own programs in place. These are benefits in place for first home buyers and are either cash grants, stamp duty exemptions of a combination of the two. The two largest states (NSW and VIC) only pass on these benefits to buyers of brand new properties of building a new property. This website (http://www.firsthome.gov.au) provides the link for your state or territory.
At Murray Home Loans we understand the differences and can quickly tell you what benefits you might be eligible for. We can also explain when and how these benefits are passed on to you.
It goes without saying that the more deposit you can save the less you need to borrow. In bank speak this equates to a lower LVR, or Loan to Value Ratio (the loan divided by the purchase price). If your LVR is higher than 80%, you will need to pay LMI (Lender’s Mortgage Insurance), and the lender could charge you a higher interest rate. You can avoid these extra costs by saving a bigger deposit to lower your LVR. Alternatively, we see many first home buyers receive gifts from parents or family. Use our Loan Repayment Calculator to see how much you could save by having a larger deposit. It is possible to take out a home loan with no deposit/gift. This is called a Security Guarantee Loan – follow the link for more information.
Compromising on your property
Not everyone is fortunate enough to be able to choose the place the want to live in. The sheer costs of property in Australia these days and the deposit required to get started can prove to be quite prohibitive to some.
If you’re trying to get a foot in the market, consider other areas that you may not have previously considered. Generally, areas further from cities or towns can be better value for money and offer a great first step into the market. However, the compromise is often about being close to amenities or work or access to public transport.
If you are seriously after a property in a particular area you may have to start small and work your way up. Consider an apartment or a smaller house that you can add to over time.
What you can afford versus what you can borrow
Quite often customers ask why it is that they can afford to pay more than lenders will potentially lend them. There are many factors here. The primary one is that lenders assess home loans at much higher interest rates (usually 7% to 8%) that you can get in the market today – this is to build in a buffer for potential future interest rate rises. Also, living expenses tend to be higher than customer budgets. Lastly, a phantom debt is the unused credit card limit. Even if it isn’t utilised most lenders charge a notional repayment again them which reduced borrowing capacity.
After the house price the largest cost is usually stamp duty. Usually, because first home buyers might be exempt from this depending on the type of property being purchased – use the calculator to find out more. After this conveyancing comes next (around $1,500 + costs), Government charges (usually less than $1,000, varies by state), bank fees (usually ranges from $0 to $500, varies by bank and loan). There are also adjustment costs for any rates, taxes, rental and owners corporation fees applicable to your purchase (conveyancer can advise, but allow maybe $1,000). Lastly, you will have your moving costs, utility connection fees and perhaps the cost of new furniture to factor in.
Pest & Building inspections and Strata Reports
There is no legal or lending requirement for why you should invest a little money in these, but they might save you from buying a lemon. Most people buying houses get a pest & building report done. Those buying strata properties get a strata report done (and perhaps a building inspection as well). So, what are these reports?
A professional pest & building inspector can spot hidden issues such as rising damp, structural damage and pests, which could potentially save you thousands of dollars down the road.
A strata inspection report is a report that purchasers of a strata titled, community titled or company titled property commission. At best, a strata report can reassure you that the scheme you’re buying into is a nice place to live with well-maintained amenities. At worst, it may uncover fiscal mismanagement, disputes between owners, high levies or unresolved legal issues.
The average cost for these would be $300-500, but can vary depending on the size of the property of complexity of the strata.