Things you should consider when financing your new property..
How much you can borrow from a lender will depend upon your taxable income, living expenses, existing debts and deposit. It is a good idea to confirm your borrowing limit with your lender before looking at properties.
Most lenders will lend up to 80% of the value of a property. If you need to borrow more than this you may be required to take out mortgage insurance, which insures the lender against a borrower defaulting. In addition to a deposit you will also need funds for legal fees, stamp duty, and other costs such as moving house.
Costs can include:
- State Government stamp duty.
- Local Council fees.
- Titles Office fees.
- Body Corporate search fees (where applicable).
- Bank loan application fee.
- Bank charges for title searches.
- Bank settlement fees.
- Bank stamping and lodgement fees.
- Stamp duty on mortgage.
- Titles Office registration fee on mortgage.
- Solicitors fees on purchase.
- Solicitors fees on mortgage.
- Valuation fee.
- Builder’s inspection fee.
- Surveyor’s spot check fee (where applicable).
Given the length of time it takes to have a home loan approved, it is good to be pre-qualified.
This usually consists of talking to your lending institution and answering some preliminary questions. At this stage, they are not agreeing to give you a loan. They are simply giving you an estimate of your budget.
Reasons to be pre-qualified:
- You will know in advance what your payments will be.
- You won’t waste time considering properties that are outside of your price range.
- You can select the best loan package without being under pressure. There are many options to choose from in today’s market.
- Sellers may find your offer to purchase more favourable if they know in advance of your ability to secure financing. This may make your offer more attractive if you are in competition with other offers.
- Peace of mind when searching for your property.
Pre-approval is the next step where you receive a letter indicating your approved borrowing limit. When you have found the perfect house and your offer is accepted, pre-approval will reduce the time taken for your finance to be finally approved.
Questions for your lender
- How long do you take to approve a loan application?
- Do you charge upfront fees?
- Do you have monthly charges over and above the interest payments?
- Do I have a choice of loan structure such as principal and interest, interest only or a combination loan?
- Are your interest payments fixed or variable?
- What is your variable rate?
- What is your fixed rate for 1 year, 3 years and 5 years?
- Is your interest in advance or in arrears?
- How often are your interest rates reviewed?
- How soon after Reserve Bank interest rates are dropped do you pass this on?
- How much do you charge to release my mortgage if I should wish to pay it off early?
- What maximum % of valuation or purchase price will you lend?
- At what % does mortgage insurance kick in?
- What are the costs of switching from variable to fixed interest?
- What are my initial monthly repayments?
- Do I need to pay for a valuation?
- Can I choose my own valuer?
- Can I choose my own solicitor?
- What other costs, if any, will be applied?
- Will you accept a loan repayment guarantee from an acceptable third party?