Think About This Before Buying a Home

So after reading our FAQ section, that is just the start! Here we present a few great tips and advice regarding actually buying a home rather than applying for the home loan. By reading this we hope that we have really helped you understand the impact that having a mortgage will have on your life.

The 10 Steps to Buying a Home

  1. Plan and research properties and loans
  2. Save a deposit (aim for 10-20 per cent)
  3. Arrange possible finance (loan pre-approval)
  4. Start looking - check out the market
  5. Choose a property but don’t fall in love with it yet!
  6. Check the condition of the property
  7. Formal loan application and approval
  8. Legal checks and requirements
  9. Exchange of contracts (deposit cheque required)
  10. Settlement and moving in!

Home Loan Checklist

By going through the following and giving yourself an honest answer, this checklist will help you better understand the type of mortgage loan you should be going for. You might not need one with all the bells and whistles that have been offered to you in order to sweeten the deal. You could potentially save yourself a bunch of money every year.

  • Do you want the flexibility to make additional repayments or pay out your loan early?
  • Would you prefer the predictability of fixed loan repayments?
  • Would you like a redraw facility or the ability to suspend payments on your loan while you start a family?
  • Will you be making weekly, fortnightly or monthly repayments?
  • How much deposit do you have? Will you need mortgage insurance?
  • Can you use an existing property as security for a home-equity loan?

Types of Home Loans

  • Fixed rate interest rate - The interest rate and repayments are set for a pre-arranged term.
  • Standard variable interest rate - Your repayments may rise or fall at the discretion of the lender, often in line with official interest rate changes made by the Reserve Bank of Australia.
  • Basic variable interest rate - Same as above but without extra features.
  • Discounted variable loans - The standard interest rate is reduced or ‘discounted’ for an agreed initial period
  • Honeymoon rate - They offer an attractive introductory interest rate for a fixed period, usually twelve months. Find out what interest rate your loan reverts to when the ‘honeymoon is over’ and if any restrictions apply during the honeymoon.
  • Line of Credit - A home loan that lets you access a line of credit using the equity you already have in your home as security.
  • Principal and interest loan - A standard type of loan where your repayments are calculated to include the amount of money borrowed plus interest.

What can you Afford?

Before you can calculate how much you can afford to pay for your home, you first need to work out the total cost of the purchase. As a general rule, the total cost of purchase is around 5% of the price of the home, and includes legal and government charges, loan establishment and administration fees and mortgage insurance if you are borrowing more than 80% of the property’s value. Stamp duty is calculated as a percentage of the purchase price, so the more expensive the home, the higher the total purchase cost will be.

Purchase Costs

On top of your deposit, you will need to have an additional 5-6% of the price of the home to cover purchase costs such as:

  • Legal Costs
  • Inspections
  • Government charges
  • Financial costs
  • Moving costs

4 Things Lenders Look for Before Approving a Home Loan

  1. Capacity - Can you afford to repay the loan?
  2. Character - Are you a good financial risk? Do you have a history of repaying your debts?
  3. Collateral - Is the property you are buying adequate security for the money you are borrowing?
  4. Capital - What you already own.

The 25% Rule

Most lenders won’t allow your loan repayments to be more than 25% of your total income, although this rule may be relaxed for higher income earners. So if your total monthly income is $2,400 your loan repayments must be no more than $600.

Did you Know?

  • It takes most people 2-5 years to save a deposit
  • Finding the right people to lend you the money may take at least three months
  • If possible, start researching loans and property prices a year before you want to buy.