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Once you’ve saved up a deposit for a home, it’s tempting to go straight to looking at properties and house and land packages to find your dream first home! But before you do, you need to ensure you have approval in place for a mortgage. Without a mortgage, it’s unlikely you’ll be able to jump straight in to owning a home. We spoke to our friends at The Australian Lending & Investment Centre (ALIC) who gave us a summary on what a mortgage is, and how you go about obtaining one so you can become a home owner.
A mortgage is a legal agreement where a bank or financial institution lends money to an individual at interest so they can purchase a residential dwelling. The condition of the loan is that the individual’s title on the property becomes void if repayments are not made on the debt at regular intervals as set by the financial institution.
Working with a mortgage broker to gain mortgage pre-approval is the next step once you’ve saved up a home deposit and you’re ready to look for a property to purchase. Pre-approval is a valuable qualification for buyers , as it’s a guarantee from the lender that you’ve been approved for a specific loan amount for a set period of time. Your mortgage broker will request information from you such your salary amount, and documentation about any existing loans and assets you may already have. They’ll use this information to calculate how much money the bank will allow you to borrow. Part of their job is also to provide advice on what is realistic for borrowers and their lifestyle, particularly when it comes to working out what your monthly mortgage repayment will be.
Mortgage brokers are accredited with a number of different lenders, which enables them to compare interest rates and provide the best home loan option for buyers. Once you’ve found your dream home and you’ve made an offer of purchase that’s been accepted, brokers do the hard work for you by following the loan application from start to finish. They act on your behalf during the application process to ensure things move forward efficiently and know who to speak to if any issues arise. They also have a sound knowledge of penalties and hidden fees, and thanks to the Australian Securities and Investments Commission regulations, provide peace of mind for borrowers that they will not receive a loan they cannot afford.
Once you’re ready to finalise your mortgage, your broker will research and recommend the best home loan for you. There are a number of different options available in the market, including basic loans and package loans. Just as the name suggests, basic loans just include a ‘no frills’ loan from the lender. Package loans involve combining your home loan and other commonly-used financial products into one bundle. It can allow you to gain benefits such as access to fee waivers, offset accounts, a credit card with the annual fee waived, or discounts on insurance.
When working with your broker, it’s important to consider a number of things, including:
Your answers to these questions will determine whether your mortgage broker sets you up with a package loan or a basic loan.
Whether you’re a first home owner ready to purchase property for the first time, or an existing home owner ready for the next stage of life, your mortgage is what allows you to make changes to your property portfolio. Working with a mortgage broker to determine what you can afford to borrow is the first step towards making your purchase.
Hotondo Homes is not an authorised financial institution and we recommend home buyers always seek the advice of a registered financial professional before purchasing a home.
Buying a house is an exciting and memorable milestone. It can also be a life-changing step towards financial freedom.
Saving for a house deposit can be an arduous task, often taking years to do. However, it’s important to remember that it’s worth it in the long term.
The more you save, the less you have to borrow. The less you have to borrow, the less you will have to pay in interest over the life of your loan.
There are many different ways to save for a deposit, many of which don’t require a drastic change to your lifestyle. Nonetheless, it does take some discipline, determination and often sacrifice.
If you’re focused on saving for your first home (or even a holiday overseas) follow our simple saving tips that will help you get there faster.
SET GOALS – WORK OUT WHAT YOU CAN AFFORD
Setting goals is the best way to eventually buy your own home. It’s important to be realistic when setting saving goals for yourself or your family as a whole. If your goals aren’t achievable then you won’t ever get to where you want to be.
Set short terms goals. For example, calculate the amount you need to spend on rent, bills, food and transport for the week, as well as anything else you might need. When you know this, you can then set yourself an amount that you’re going to save each week.
These short term goals will allow you to then set long term goals because you will know how much you can potentially save each year.
MONITOR YOUR GOALS
If you write down your saving goals you can continue to asses and reassess them throughout the saving process.
This is an easy way of keeping track of how much you’re spending and how much you’re saving. It will also give you an idea of the things you’re buying, but don’t necessarily need.
CUT BACK ON EXTRAS
Some things you may be able to cut back on are buying your lunch, going out for expensive dinners, buying a coffee every morning or paying for a gym membership you don’t use.
DO YOUR RESEARCH – STAY UP TO DATE
If buying a house is your long term goal, it’s important to know and understand the property market before you enter it. The property market is always changing, therefore it’s important to educate yourself and stay up to date.
You can do this by going to auctions, reading the property section in your local newspaper or monitoring online real estate websites.
Don’t forget to also talk to people who have been through the process. Your parents and friends can be a wealth of information and they can talk from experience.
GET RID OF OTHER DEBT
When saving for a home loan it’s important that you don’t have other debt holding you back. This can be a barrier to achieving your saving goals.
Credit cards and personal loans can often have very high interest rates. Don’t get lured into this trap. Remember, it’s always better to spend money you actually have in the bank.
SHARE THE LOAD
There’s no doubt that saving for a home with two incomes is easier than one. This will allow you to get into the housing market sooner, as well as having less financial stress when managing your home loan.
DON’T BITE OFF MORE THAN YOU CAN CHEW
Don’t assume just because you qualify for a home loan that you can afford it. Go back to your plan and work out exactly how much you can afford to pay towards a home loan each week or month. Ensure that you will be able to pay your mortgage, as well as being able to do special things every now and then, like going on a holiday.
Choosing a home loan can be a daunting process as there are many things to consider for not only yourself, but your family.
Choosing the loan that’s best for you can also be difficult and confusing due to the lending industry becoming increasingly competitive and complex in recent years.
When choosing a home loan it’s important to work out the features you need from your loan as there are many different variations when it comes to home loans. The fees and features differ greatly depending on the lender you choose, and this is a vital consideration.
When making the decision of what home loan you will choose, it’s also important to look at the loan as a whole package, not just one aspect of the loan. For example, if a loan has a very low interest rate the fees may work out to be high.
Compare home loans
Do your research. Shop around. Compare different home loans and different lenders.
Asking lenders for a key fact sheet is a valuable tool when comparing home loans. This will give you the most important information.
Types of loans
The most common home loan is a principal and interest loan which involves making regular payments against the amount borrowed, as well as paying off the interest on the loan.
The lender will usually offer different principal and interest loans, with different features included.
Other types of loans include an interest only loan, bridging loan or building/ construction loan.
Rate options for your loan can include variable, fixed or split loan.
Variable interest rate – This can go up or down over the life of your loan.
Fixed term interest rate – This rate will remain fixed for a period of time. After this time it will usually revert back to a variable interest rate.
Split loan – This is split into variable and fixed term.
Other features of your home loan can include having an offset account, redraw facility or a line of credit.
Having an offset account attached to your home loan can be beneficial if you have a substantial amount of money in the account. This amount is taken off the amount you owe on your loan, reducing the interest you will pay over the life of the loan.
A redraw facility enables you to pay extra money off your loan and redraw it later, if needed.
Having a line of credit attached to your home loan means that a specific credit limit is set and you can spend up to that limit. This feature suits people who are disciplined budgeters and who may receive an irregular income.
Having an offset account, redraw facility or a line of credit attached to your home loan can result in a higher interest rate or fees. Therefore it’s important to consider whether these features are a necessity.
For more information on choosing the home loan that’s best for you, contact your local mortgage broker or bank representative.