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Ben Kingsley Blog post by Ben Kingsley

7 Things to Consider when Securing Your New Home/Investment Property Loan

Whether it’s your first time or tenth home or investment purchase, choosing a lender in a competitive market and getting a loan approved by a bank or lender is a laborious task. There are a lot of requirements to satisfy, applications to fill out and paperwork to get it order, so it can seem as if you will never get it all together and you are never quite sure you are getting the right deal. The key, as in most every endeavor, is to be organised and persevere. It’s all right if you get some help, as well. Here are seven things you can do to make the process smoother, even if it takes a bit of extra time. 

Do Your Research

There are many resources online to teach you all about the different types of loans available for homebuyers or investors. Take advantage of these tools to educate yourself about how these wild thing called homeownership or property investing works. Will you want a fixed-rate or variable-rate mortgage? Is getting an investment property loan any different with getting a home loan? Maybe an interest-only or split-rate option is for you. How about setting up an offset account?Get familiar with the differences between the packages and determine which will fit your financial situation. There likely will be several options for where to apply for a home loan; banks are not the only source. Also, determine the ideal term for your loan. They can run from 30 to 15 years to everywhere in between. Can you afford to make two payments per month in order to cut down on interest or throw in some lump payments on occasion? Find a payment calculator on any lender’s website and plug in some numbers. Compare payments with terms, Lenders Mortgage Insurance, interest rates and loan amounts, then keep adjusting until you find your ideal scheme.

Shop Interest Rates

Speaking of interest rates, they can vary widely depending on the lending source. Flex your research muscle once again and compare rates by institution and loan type. Also, be aware of current variable rates and know when they might be likely to change. The Reserve Bank of Australia (RBA) will announce the official cash rate every first Tuesday of each month and only last month (February 2015) they have dropped the cash rate by 25 basis points in which most banks had passed it on. So if you time it right, you might be able to wait a week or two and find the interest rate has dropped a quarter of one point. That may not seem like a big deal now, but over the lifetime of a 30-year home loan, it certainly can add up. The point is, you’ll want to know enough about current average rates to recognise if a lender is charging far too high a rate.

Having said that, bear in mind that interest rate is not the ‘be all and end all’ in finding a home loan. You want a home loan that you can service and at the same time provides you with the flexibility to maintain a reasonable lifestyle. Sometimes this might mean that you go for a slightly higher interest rate but with a lender that will allow you to structure your loan to cater for your next purchase. On other times, it might be a lender that have a good system in place and would make sure your loan is approved on a timely manner for you to settle on a property.

Get Your Paperwork in Order

No matter which lending source you end up choosing, there will be a lot of paperwork required, so you might as well start gathering it up now. Organising the basics such as a driver license and proof of residency is an easy way to start. PAYG or proof of employment will be required along with tax returns for the past few years and proof of investment income. Basically, you should be prepared to provide any documentation that indicates your identity and sources of income. It’s a lot of paper to dig out of your files, but it’s vital you have it all on hand before beginning the application process. It’ll be much better if you understand what the Banks look for when lending money to know what kind of paperwork you need to compile.

Put Your Credit in Order

Taking charge of your credit situation is a must when considering applying for a home loan. Not one lender is willing to lend money to people with credit issues whether it be arrears, default or bankruptcy. So it is crucial for you to maintain a good credit rating. Sometimes, this can be a relatively time-consuming process, especially if paying down debt is part of your attack plan. Start by compiling a list of all the credit sources you have as well as the balances. If you can, create a strategy for eliminating as much of the debt as possible, starting with the one that has the highest interest rate. While you are working on that, get a current report with your credit score and history. Take a close look for anything that seems incorrect or so old that it should have dropped off the report by now. If there are inaccuracies, work with the credit bureau to get the errors corrected and the ancient-history items removed. After you’ve done all you can to improve your score, get a fresh report that reflects your efforts. 

Save a Deposit

It can’t be understated how much of a boost you can give your borrowing power if you are able to save some money toward a deposit and accumulating at least a 5 percent down payment generally is required. The more cash you have on hand, however, the smoother your application path will be. The best mark to hit is 20 percent down. At that threshold, you won’t be required to foot the bill for Lenders Mortgage Insurance (LMI), which usually adds thousands to your borrowing cost. Of course, it can be difficult to squirrel away that much money, depending on your income and how much time you are willing to delay the purchase of your home. There are also other ways where parents or other family members might be able to help you build up your deposit, with a plan in place for you to pay them back, naturally. Remember to include other cost of buying a property such as the stamp duty when you are figuring out your deposit and lending amounts. You don’t want to be just a few hundred dollars short at the crucial moment. If you need an incentive to boost your savings in preparation for a home loan, just consider that banks may give lower interest rates and more favorable loan terms to people who can contribute a deposit, again usually more than 20%. 

Check if you qualify for only first-timer benefits

First home buyers can benefit from a variety of incentives when buying a house. Take a close look at the requirements that apply to the First Home Owners Grant (FHOG) and determine whether you can take advantage of this one-time windfall in your state or territories. The rules are different by state, but generally the property must be new or significantly improved, and the new owners must reside in the house for a set period of time. The home must be in Australia, and there is a cap on how much it can be worth. The full list of restrictions according to state are readily available online, so if you are buying your first home, be sure to include this grant in your application plan. Another benefit for first-time buyers is that some states such as Victoria will reduce or waive the stamp duty on a home purchase, leaving more of your savings to be used for debt reduction or your deposit payment.

*** For information on First Home Owner Grant in Victoria, click here.

Engage a Mortgage Broker

Even with good organisational skills and a great deal of research, preparing a can’t-miss home loan application is a daunting task. Don’t be afraid to ask for help. A mortgage broker will be able to nudge you to keep the process moving forward and more often than not, keep the process fairly short and simple as opposed to you doing it yourself. Mortgage brokers have access to the same exact loan packages as banks do and what’s more, they have access to multiple lenders. So instead of you scouring the internet to compare dozens of loan packages and getting lost in this maze, the broker will be able to do that easily.

What should you look for in a mortgage broker? Look for one that doesn’t get paid a premium for setting you up with a certain lender. You want someone who has your best interests in mind, not the lender’s. Interview a few professionals and find one you can relate to. You should get the feeling that they think you are a quality investor and they are willing to “sell” your situation to the best lender at the best rates and terms. You need an advocate on your side who is willing to come out swinging on your behalf.

Buying a home is an exciting endeavor, and the anticipation of walking through your new front door can make all the requirements you must meet seem interminable. If you start with a game plan and a realistic idea on how long the whole process of acquiring a home loan will take, the path will be smoother in the long run. Start by addressing your current cashflow and savings. Search for opportunities for additional funding, especially if you are a first home buyer, and keep your eye on interest-rate trends so you can hit a sweet spot and lock it in. Having a professional in this process could be the difference between getting a home loan or investment property loan and being turned down, so engage a mortgage broker to find the perfect lender for your situation. Once you’ve gone through the whole process, you can sit back and wait for your new set of house keys or that rent to start flowing in.

You can also book a one hour Free Financial Health Check with us. It’s a no-obligation appointment and we are more than happy to be able to assist you in your property journey. Simply fill in the form at the top right corner to get started. Alternatively, you can also join our Free Property Webinar to learn about investing in property and more!

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