When you’re buying your first home or looking for a better home loan, applying for a home loan may seem like a daunting prospect. But it really doesn’t have to be that way. We show you what you need to know about finding and, most importantly, securing your home loan so that you can get onto the property ladder or find a better loan as soon as possible.
Understand what you can borrow
Before you apply for any loan – and before you even begin your property search – It is a good idea to understand how much you can borrow. The easiest way to do this is to use a mortgage calculator. You can do this yourself or seek assistance from a broker.
While a mortgage calculator isn’t exact, it will provide a reasonable estimate of how much a lender will let you borrow and therefore what your budget is when it comes to buying. (Be aware that if you add incorrect information your will receive incorrect information (the old saying of “garbage in garbage our”)).
You should also take time to make sure you know the criteria lenders will take into account when assessing your loan application, such as your credit history and ability to service a loan.
Save what you can to reduce your mortgage
Obviously, the more you have saved towards your first home the less money you’ll have to borrow to purchase it. But while that won’t simply mean you’ll have to make fewer repayments, it should make getting a mortgage a lot easier.
So, if you’re not saving some of your income each month, now’s the time to draw up a budget and stick to it. To make your savings really take off, start a high-interest savings account or take advantage of the government’s first home super saver scheme (current as at Sep 2018).
Take advantage of first home buyer subsidies and payments
The good news for first home owners around most of Australia is that the government provides incentives towards getting into your first home. These include stamp duty exemptions or concessions and, in many States and Territories, a first home owners grant (current as at Sep 2018).
These benefits tend to be especially generous if you’re buying a brand-new home under a certain value and can make it a lot easier to get into your first home.
Consider getting insurance or getting help
Most lenders understand that saving for your first home is not an easy task. That means they won’t always require you to have a 20% deposit before you borrow. Instead, you can often obtain a home loan with as little as 5% of the purchase price, so long as you also take out lenders mortgage insurance (LMI).
That said, LMI adds to the cost of your monthly repayments and may affect how much you can borrow. So, if you have a family member willing to help, another alternative may be to use a guarantor on your loan.
Many lenders now have a partial guarantee, where a family member can provide equity to cover your loan only up to the amount where you no longer need to take out mortgage insurance. This can make getting a home loan both easier and cheaper for first homeowners.
Think about using a mortgage broker
When you’re applying for a loan, it may be tempting just to speak to the financial institution you already bank with. But it usually pays to look around. The mortgage market is competitive, and you may be able to get a much better rate by going elsewhere.
Better still, consider using the services of a mortgage broker. A good mortgage broker has access to many lenders and knows their lending application processes. This should save you time and money. They also should be able to guide you on home loans given your own personal circumstances.
Once you’ve worked out what you want to buy and have an idea of how much to borrow, it’s time to get conditional approval. This isn’t a firm offer of finance but a statement that you should be able to borrow up to a certain amount, so long as you can supply information to support the figures you’ve based your application on – such as salary, savings, assets and expenses – and the value of the home you’re purchasing is verified by a professional Valuer.
Conditional approval usually lasts for 90 days and can give you some certainty in your property search. If you use a mortgage broker they’ll generally apply for conditional approval on your behalf.
Finally, a lot of first home buyers put off applying for a home loan and buying their first property because they’re worried about the state of the property market, how much they’ve saved, or whether they can get a mortgage in the first place.
We encourage you to talk to an accountant or a financial advisor as well.
After all, when it comes to getting into your first home, knowledge really is power.
Finance Circle Group do much more than arrange finance for home loans. We can help to identify and secure commercial and asset funding to enable your growth, while at the same time preserving your operating cash flow.
We can be a one-stop-shop for your financing needs. Contact us to find out more about how we can help you with commercial and asset finance.
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Finance Circle Group
The information on this website is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.