Applying for a home loan is the first step in realizing your dream of making an investment toward your future. For most people, a home will be the most expensive purchase that they make and will need to apply for a home loan. This is not as daunting as you fear if you are well prepared.
Follow this checklist on home loan tips and be prepared.
Save money before looking for a home
There are many considerations to make before you even begin searching for the right property. The most important is your ability to carry the extra costs attached to being a homeowner. These include stamp duty, application and registration fees, inspections, legal fees, lender’s mortgage insurance, further insurance for the home and its contents, rates for the land and water, and maintenance and repairs.
Reduce any debts
Make sure that you have as few debts as possible so that it is easier to get a home loan approved. High- interest debts like consumer loans and credit cards are usually those that hamper people from getting a home loan.
Have a considerable amount to put towards the deposit
The bigger the amount that you have saved the more you will be able to put down as a deposit. The obvious advantage here is that you will need to borrow less money, saving on interest repayments. Bigger deposits also mean a lower loan to ratio (LVR) which means that you save on mortgage insurance, and may be offered lower interest rates.
It is ideal that the LVR is below 80%; this is worked out by dividing the amount of the loan by the purchase price or appraised value of the property.
Saving beforehand keeps costs down and you will also be prepared to immediately apply for a home loan without the risk of losing the property that you like to another interested buyer who is better prepared.
First-time home buyers may also be eligible for a First Time Owner Grant from the Australian government.
Lenders are the best people to tell you if you qualify for a loan and also the amount that you qualify to borrow according to your income, helping you to look for a home within your budget.
Is your lender licensed?
The ASIC is the body where all credit providers and brokers are licensed. They and their authorized representatives are the only place where you should look for a home loan. This is where the Professional Registers of the ASIC can be checked.
Get the home inspected before committing to purchase
It is wise to have the home that you are planning to buy inspected before committing. The inspection will ensure that you do not pay more than it’s worth and will pick up any problems with pest infestations and poor construction.
Know your home loan options
There are many types of home loan products available in what has become a competitive market. Compare rates and features and read the credit contract carefully, understanding the interest rates and fees involved. If you have decided to get a mortgage through a broker make sure to do some checks before signing.
Principal and interest loan
This is the most popular type of home loan with regular payments made to the principal (borrowed amount), plus the interest on the amount. The loan has an agreed time period known as the loan term.
For an agreed period, the repayments only cover the interest and the principal is not reduced at all. Initially, the repayments will be lower as the interest is paid off but are more likely to go up afterwards. Make sure that you will be able to afford the repayments of the principal.
The loan term is the number of years that you have to pay off the loan. Shorter loan terms can be less than and up to 20 years and they may mean higher repayments, but the interest paid will be less.
Longer loan terms can reach up to 30 years, sometimes even more, and the repayments of the loan are lower but you will have paid more interest in the end.
Look for the lowest interest rates
A difference of as small as 0.5 % can save you thousands of dollars over the term of the loan. Fixed interest rates will stay the same over a set number of years after which it will reverse to a variable rate. Variable interest rates fluctuate according to the prime interest rates set by the lending market changes. You can opt for a partially-fixed rate or a split loan where a part of it has a fixed rate and the rest a variable one on any percentage of the loan you choose.