There are so many home loan products on the market that shopping around to find the right loan for you is essential. It is wise to look at a wide variety of options before you settle on a loan. It pays to know about the current home loan market and it’s not just about the economy and whether interest rates are rising or falling. Here are some tips for you to consider
Research and Organisation is Important
Do your own research even if you plan to use a home loan broker. It pays to know about the current home loan market and it’s not just about the economy and whether interest rates are rising or falling. Be sure to ask the following questions:
- What loan options are available?
- What will my repayments be?
- How much deposit is required?
- What are the fees and charges?
- What are the loan conditions and any penalties or exit fees?
There are so many home loan products on the market that shopping around to find the right loan for you is essential. It is wise to look at a wide variety of options before you settle on a loan. Make sure you understand the terms and read the small print before you sign anything.
Although a broker or bank will be happy to explain many of the common home loan terms used plus the various products and options available, it is worth your while reading up on a glossary of terms so you at least understand the jargon used.
Think about your lifestyle to establish which loan features are going to be the most beneficial for your circumstances and budget. If you are planning to start a family, consider opting for a home loan that offers an ‘interest only’ option to help ease the pressure of a reduced income or if you like security and peace of mind, then perhaps a ‘fixed loan’ is best for you. Some of the most important features of a loan you need to consider are:
- Competitive interest rate
- Sufficient time to repay (usually 25 or 30 year term)
- Favourable conditions and charges with limited fees/penalties
- Options that suit your needs and circumstances eg. redraw facility
It is important to be organized so be sure to get your affairs in order before you go home loan shopping. By now you should have done a budget and worked out how much you can actually afford to borrow. It is this information that the borrower will want to see coupled with official documentation, such as tax returns and pay slips.
The Benefits of Using a Home Loan Broker
Shopping around for the best deal is the most beneficial service a home loan broker can offer you. Essentially they sell the products of the lending institutions so they are in a prime position to pass on specials and new products plus a wealth of knowledge when it comes to advising the most appropriate loan to suit your needs.
Using a home loan broker can save you a huge amount of time and stress. You will be dealing with only one person, which should stop you from being bombarded with phone calls and advertising material from banks trying to vie for your business.
What’s more, a home loan broker is experienced in loan preparation and presentation. They will compile all of your documentation, liaise between you and the bank, resulting in the best possible case for approval.
Make sure you use a home loan broker that is a member of an industry association, such the Home loan Finance Association of Australia. Also be aware that they are actually offering the best loan for you and not the one that offers them the highest commission.
Lenders take into account four main considerations or criteria when assessing your home loan application. Firstly your capacity to repay the loan based on your income and expenses. Secondly, if you are considered a good financial risk, so they will check your credit rating to see that you have a history of repaying your debts. The third consideration is collateral, which ensures the property you are buying is adequate security for the money you wish to borrow to pay for it. Finally, they look at your capital, which are any assets you currently own.
Getting your application approved is the next step to owning your own home. Common practice is to obtain a ‘pre-approval certificate’ prior to buying a property. This will help your property search and keep your budget in check. This certificate confirms that a financial institution will lend you ‘x’ amount of money when you find a property to buy. Be careful though, one of the standard conditions is ‘subject to valuation’. If you pay too much for a property, your lender will see this as a risk and may not provide the cash. Not a good position to be in when you’ve already exchanged contracts!
If you have a solid track record with a particular bank then this puts you in a favourable position for a loan. Use it to your advantage and start negotiating with your preferred institution. State your case for wanting to continue doing business with them. Be confident and firm, there may be room for negotiation. Despite what you may think, banks take customer loyalty seriously.
With stricter lending criteria in the wake of the Global Financial Crisis, it may also be necessary to show a genuine history of your ability to save money. In some instances, particularly for first home buyers, a guarantor may also be required or a larger deposit (at least 20 percent of the purchase price).