Many of us intend to buy a house, sooner or later. Considering the low interest rates and the property boom in many states in Australia, the timing is also ripe to jump on to the property wagon.
Let us help you plan your journey to owning your dream by helping you plan your home loan with some practical tips.
This is the best advice anyone would ever give you. Planning at a young age can save you thousands of dollars on rent payments, which you can use to pay off your mortgage instead.
Budget: If you have just started working, it is the right time to make a budget and plan you financial future. Input all your income and expenditure in our budget calculator to see if you are in surplus or have a shortfall and how you can save more.
Savings: Don’t make the folly of going to the market as soon as you decide to buy a house. Gone are the days when you could apply for a 100% loan to purchase a property. Currently, most lenders require a minimum 5% deposit before approving your loan application.
Before applying for a loan, collate all your savings and check where you stand. It can take up to 2 years to build up a decent deposit, making it all the more important to plan early.
Credit score: Act smart and maintain a clean credit file and high credit score to up your chances of loan approval. Make timely bill payments and do not keep unnecessary credit that can adversely affect your credit history.
Choosing the right loan
Borrowing capacity: Many buyers get disappointed as they overestimate their borrowing capacity. Calculate how much you can borrow based on your existing income before you apply for a loan. It is also prudent to work out your weekly and monthly repayments (preferably at a 3% higher interest rate) to ensure you are never stretched beyond your means.
Shop around for the right loan: Comparing various loans online is an easy way to get the best deal from the comfort of your home. Does a fixed rate of interest suit your budget or a variable one? Do you want an offset account linked to your loan or have the option of flexible repayments at no cost?
Preparing the documentation: Don’t let paperwork weigh you down by collating your documentation prior to applying for loan. Keep your latest pay slip handy along with the tax certificate for the previous year, copy of your savings and an ID proof.
Loan preapproval: Getting preapproval for your loan tells you exactly how much a lender is willing to lend to you so that you shop for the property accordingly. Read more about loan preapprovals and prevent any disappointments later.
State grants: Most states offer stamp duty concessions and First Home Owner Grants, especially if you choose to buy a new construction or decide to develop a vacant land. Most lenders are authorized to receive the grant on your behalf and it can be used as a part of your deposit.
Checking the licenses: While an expert mortgage broker can take you sailing through the home loan process, it is important you avail the services of a licensed broker only. Find out if a broker is licensed by searching ASIC Connect's Professional Registers or phone ASIC's Infoline on 1300 300 630.
Also, if your lender is not an Authorised Deposit Taking Institution such as a bank or a credit union, the maximum fee they can charge you is capped at 48% per annum by law.
Until last year, Lily and Joe were spending $3,000 a month on rent and decided to buy a property to save on the rental payments. They calculated they earned $120,000 together and could borrow up to $475,000 jointly for a term of 30 years at a variable rate of 5.50%.
Lily and Joe, after collating their savings of $40,000, contacted a mortgage broker at HashChing who helped them to prepare their documentation and advised them to check with different lenders before deciding on one.
Finally, they borrowed $400,000 at a variable rate of 4.90% for a term of 27 years (saving them both time and money in the future). They now live in a modern and elegant apartment in a suburb close to their office and use the money they spent on rent to pay off their home loan.
Paying your loan faster
Now that you have successfully applied for a loan, don’t forget to read our article on paying off your debt quicker so that you could gain your financial freedom faster.