These days, getting a home loan doesn’t need to be an overwhelming experience. Yes, buying a home is the biggest financial decision most people make. And yes, it’s a long-term commitment of 25-30 years. But thanks to technology, the process has gotten a lot easier, and today you can get a home loan without leaving your couch.
Got a home loan question? Speak to a Home Loan Specialist.
The home loan process can be pretty straightforward as long as you're aware of what's next.
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The general rule of thumb is to save a deposit of 20% of the purchase price of your property. This will give you a loan to value ratio (LVR) of 80%. LVR is simply a term used to describe the ratio of the loan amount you borrowed to the price of the home you purchased and it has some important implications when it comes to getting a mortgage.
A low LVR is favourable as it signals to the lender that you are a less risky borrower and having a deposit more than 20% means you won’t risk having to pay Lender’s Mortgage Insurance (LMI). Read more about LMI here.
However, in today’s property market, some Australian first home buyers enter the market with just a 5% deposit. If you’re low on a deposit, read our guide to no deposit home loans here.
Calculate your borrowing power based on your income.
Don’t put all your eggs in one basket. If you go directly to a bank you will only see a limited number of options. Save your yourself a lot of time (and probably money) by going online and using an online home loan platform, there you can compare loans from all the major banks and lenders in one place. You'll see personalised home loan results for your specific requirements in seconds.
First, we’ll ask a few questions about your financial situation in order to calculate your borrowing power. This is calculated through examining your income and expenses, assets and liabilities and the deposit you can afford to put down.
When getting a home loan you can expect to answer questions about:
Find out if you can save with a lower interest rate.
Next up it’s time to think about your loan preferences. This is how we find a loan best suited to your lifestyle. How would you like to pay off your loan and how would you like to be charged interest?
You can choose to pay the interest on your loan in a number of ways. Ask yourself whether you require the stability of e.g. a fixed rate, over the flexibility of e.g. a variable rate.
Variable rate loan - These loans have variable interest rates that rise and fall with market rates and can subsequently mean more uncertain repayment amounts. On the upside, these loans generally give you the option to make extra repayments.
Fixed rate loan - Loans with fixed interest rates have a set interest rate, generally for 1-5 years and offer more certainty but the downside is you won’t be able to benefit from falls in interest rate and they can be costly if you want to refinance during the fixed rate period.
Split loan - You may also want to consider a split loan which is essentially a combination of a variable rate loan and a fixed rate loan. One portion of the loan is paid via a fixed interest rate and the rest will be paid under a variable one.
How you repay your loan can have a big impact on your finances. You’ll be asked if you want to make principal and interest, or interest only repayments. This decision can impact how much total interest you pay over the life of your loan and the initial interest rate you are offered by lenders.
Loans with interest-only repayments- ‘Interest only’ repayments mean you will only pay off the interest charged on your loan rather than the loan itself for a set period of time (typically 1-5 years). It’s important to remember that you are not repaying the loan itself in this period and will pay more interest in total over the life of the loan.
Loans with principal and interest repayments - Principal and interest repayments consist of both the amount you initially borrowed i.e. the ‘principal’ as well as the interest or cost of borrowing. This option means you pay less interest overall and will own your home outright sooner.
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Home loans can come with a lot of features or none at all. The features you choose will depend on your individual needs and preferences. You should be aware that some features may incur an annual fee. Here are some features you might want to think about:
Offset accounts - An offset account is a savings or transaction account linked to your home loan and is designed to reduce the amount of ‘principal’ upon which your interest payable is calculated, thereby reducing the interest you pay. These accounts give you unlimited access to your money but generally do not give you the option to make additional repayments.
Redraw facilities and making extra repayments - A redraw facility allows you to make extra repayments and then access these repayments at a later time if you need the funds. It’s worth noting that fixed rate loans typically do not have extra repayment functionality.
Home loan portability - If you think you might move home in the next few years, a home loan with this feature will allow you avoid break cost fees if you wish to keep your loan when moving to a new property.
Repayment holidays - A small break period from making repayments when your cash is needed elsewhere e.g. going on parental leave.
Repayment frequency and schedule - More frequent repayments (i.e. fortnightly rather than monthly) can mean a saving in interest in the long run since lenders calculate interest daily. Remember to choose a repayment schedule that suits your own lifestyle and income.
Online access - The ability to access your home loan account to check your balance or make any changes can be a useful feature.
Got a question? Our Home Loan Specialists are here to help. Schedule a time to chat with an expert.
What is pre-approval? Pre-approval is simply an indication that a lender is likely to approve you for a specific home loan and most buyers get pre-approved before they make an offer on a property.
The main benefit to getting pre-approved is that you’ll know what you can, and can’t afford to buy. This is particularly helpful when it comes to bidding at auctions.
The benefits to pre-approval include:
Hate commitment? Pre-approval is by no means a binding contract and if you haven’t found the property you’d like to purchase once your pre-approval expires, you can easily extend it for free.
Documents you'll need to provide to get a home loan:
(Pssst!! You can upload and verify these securely online with Lendi)
You'll see a shortlist of the best loan options available to you based on your specific needs and circumstances.
It's time to review your loan recommendations and choose the loan which best fits you and your individual needs. Remember that our Home Loan Specialists are always here to help if you need a hand.
Once you've chosen your loan, your application will be submitted to the lender who will assess the documentation and if all looks well, give you Approval in Principal (pre-approval). Remember, assessment wait times for pre-approval will vary depending on the lender. If you're in a hurry, let one of our experts know and they can advise you of lenders with the shorter wait times.
Once you’re pre-approved, you can confidently make an offer on your dream home knowing what you can afford.
If your offer is accepted you’ll have a 5-day cooling-off period (there is no cooling-off period if you purchase at auction).
During this time your Home Loan Specialist will help organise a valuation and building inspection. Don’t forget to provide your solicitor or conveyancer with the contract of sale.
Once your offer is accepted you will exchange contracts and pay the deposit. Once your lender ensures all documents are in order, your loan documents will be generated for you to sign and return. Your legal representative will review your home loan contract so can get formally approved.
On settlement day, the lender will pay the seller of your property on your behalf and you will need to pay any final costs e.g. stamp duty. Your first loan repayment is typically due 1 month from the settlement date.
What do you need to do? Ask your solicitor or conveyancer (also responsible for transferral of property title) where your funds need to be in order to finalise the loan.
If you’ve reached this last step, your conveyancer will contact the real estate agent and instruct them to hand over the keys to you, the new owner.
So there you go! The home loan application process can be straightforward with the help of technology and advice from experts.
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