OBTAINING HOME LOAN FINANCE

It pays to be cautious when it comes to home loan credit. Always ask questions about fees and charges, and make sure you carefully study the fine print on all contracts, brochures and information leaflets.

Assessing finances

You should carefully assess your financial situation and desired standard of living to calculate a loan amount you think you can comfortably afford. Remember to plan for future commitments or changes in circumstances.

To decide on your financial limit, first calculate the deposit and repayments you can afford.

Don’t forget to include other costs such as:

• Loan establishment fees

• Legal and conveyancing fees

• Government charges such as GST and stamp duty (payable on the mortgage and the transfer of property)

• Property inspection fees

• Moving costs

• Insurance (building and contents)

• Immediate repairs required, and

• Furniture you may need to buy.

Lending Criteria

Eligibility requirements vary between financial institutions, but lenders generally use two criteria to work out how much they will lend you:

• Your income and repayment capacity, and

• The loan to valuation ratio

The lender will calculate a maximum loan amount. However, as an informed borrower, you are the best judge of what you need and can realistically afford. As a guide, aim to spend no more than one third of your gross income on loan repayments.
 

The Deposit.

Depending on the lending institution and type of loan, a deposit equal to a certain percentage of the purchase price will be required. While most minimum deposits are five percent of the purchase price, in some cases an institution may lend 100% of the purchase price, requiring no deposit at all. If you are borrowing 80& or more of the purchase price, lenders generally require you to pay for mortgage insurance, which means an additional fee.

Some lenders require proof, through bank statements, that a certain amount of the deposit came from your own savings.
 

Mortgage Insurance

Mortgage insurance or mortgage guarantee insurance usually applies if you are borrowing more than 80% of the purchase price. This is usually in the form of a one off premium paid at the time of settlement. Mortgage insurance does not protect your interest. It protects the lender in the event that you default on the loan and the amount still owed is greater than what is received from the sale of the property. It is important to note that if you default and the mortgage insurance is paid out, the insurance company will pursue you to repay the debt. Under the Consumer Credit Code a lender can require you to tale out insurance.

Consumer Credit Insurance

Consumer credit insurance is an option to safeguard you if loan repayments cannot be made because of sickness, accident or unemployment. Carefully consider the costs of the insurance to determine if the benefits are worth the outlay. Also, study the terms and conditions for any restrictions or limitations, such as a three-month limit on coverage.

Under the Consumer Credit Code it is against the law for a lender to require you to take out this type of insurance.

Consumer Credit Code

To ensure fair dealing and to protect your interests, all lenders must comply with the Consumer Credit Code. The Code regulates all credit for personal, domestic or household purposes. Under this Code lenders must provide:

• A statement outlining the borrower’s rights and obligations.

• A pre- contractual statement setting out certain financial information, which must be included in the contract document

• Comparison rates for loan options

This not only protects you, but also helps you to compare products and make an informed choice.

Choosing a Lender

It usually takes some time to find the right home. This gives you the opportunity to organise your finances and apply for a loan. Most lenders will approve a loan in principle, allowing you to be confident of your spending limit when searching for a property. This Approval is usually valid for 6 to 12 months and needs to be renewed after this period. The loan is then formally approved once a purchase has been made. Choosing the right home loan is as important as choosing the right home.
Researching and understanding the home loan market will assist you choosing the most suitable loan.

There is intense competition among lenders who offer a variety of packages, options and methods of payment. The loan that appears to be cheapest because it has the lowest interest rate may not be the cheapest option in the longer term when fees, ongoing charges, and penalties are included. Also, it may not have the flexibility and added extras of some other loans.

Quick Tip:

Below are the main types of lenders:

• Banks

• Non-bank lenders such as

• Credit unions

• Building societies

• Mortgage Originators

Many lenders conduct their business through the Internet, on the telephone and even by visiting you at home or place of work. A mobile lender can only visit you at your home or place or work if you invite him/her to do so.
 

Whatever it is, I can discuss how your home loan can work for you.

I GUARANTEE to answer you LOAN enquiry
within 15 minutes on any business day

Call me now on 1300 780 050 and ask for Sarah Redman or email me on sarahr@dreamloans.com.au or complete the application form and I will call you within 15 minutes on any business day to work out how much you can SAVE!

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