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.
What is a mortgage?
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
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.
Applying for a Mortgage
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.
Types of Mortgages
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.
Things to Consider
When working with your broker, it’s important to consider a number of things, including:
- Do you want all your banking with one institution?
- Do you like the credit cards, branch support, and internet banking services they offer?
- Are you likely to be making changes to your loan over the next three to five years?
- Do you have multiple loans and properties already?
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.