Saving for the deposit
The first thing any budding home owner or investment property purchaser needs to think about is their deposit on a property. Generally, the aim is have at least 20% of the purchase price saved up, but a lot of first home buyers obtain their first home with a lower deposit and the aid of Lender’s Mortgage Insurance. This is a good way to still get a loan if you haven’t quite saved up the 20%.
The bigger the deposit, the less money you’ll have to borrow – so it’s a good idea put a savings plan (use our savings calculator to get you started http://www.ybr.com.au/calculators/savings) in place to get you to your goal. Regular contributions to savings are helpful when you’re going for a loan; it shows the lender that you’re responsible and capable of making steady payments.
If you need to improve your savings discipline with a better budget, use our budget tool to set a plan in place.
Working out what you can afford
Once your savings plan is tracking along, the next step is to figure out what you can afford to borrow. Your home is likely the most expensive purchase you’ll make in your lifetime, so you need to know your limit. Use our calculator to work it out.
Of course, as interest rates are variable and change over time, this should only be used as a general guide. It’s also worth noting that rates are at historically low levels right now, so you need to factor in interest rate rises over your loan period. Generally 2-3% above the current rate is a good estimate to go by.
Make sure you factor in stamp duty - an upfront charge which is applied by state governments in Australia in relation to the transfer of land or property - by using our stamp duty calculator. Charges differ state by state.
Finding the right loan
When it comes to home loans, the interest rate is the probably the most important factor, but it’s not the only one. Home loan rates are incredibly competitive right now, so make sure you’re utilising comparison websites to see what’s out there and don’t be afraid to look outside the big four banks. Smaller lenders often have lower rates, so it’s worth looking around to find the best deal.
When you’re looking for a loan, also have a think about the features you’d be likely to access. An offset account is a popular one – it’s an account that links to your loan and allows you to reduce the interest you pay based on how much is in the account. So if you have a $200,000 loan and you have $50,000 in your offset, you’ll only pay interest on $150,000. A redraw facility is also important as it enables you to pay extra on your loan, but let you access that money if you need it down the track.
The application process
It’s always a good idea to get a pre-approval first. This will tell you how much money you’ll be approved to borrow, so when you start looking for a property you’ll have a budget in mind.
When you decide on your lender and start the application process, you’ll be asked for paperwork and statements which will be used to assess your ability to repay the loan. A lender will analyse your income and past credit history, as well as your savings. So it’s a good idea to make payments on any existing loans and make sure you’re on top of your credit cards in preparation.
When it comes to what you’ll need to provide to the lender, the most common items are proof of income, tax returns, a credit report, bank statements, loans statements and 100 points of identification are all fairly standard. Give yourself plenty of time to get this together so the process doesn’t cost you any necessary stress. Once you’ve provided all the necessary paperwork and there are no issues with the application, the approval process generally takes a few business days to a week.
Buying your first home can be both exciting and scary, but knowing what to expect, doing your research and being prepared can take a lot of the stress out of the situation. Talking to a good broker can also be very helpful in terms of finding the best product and walking you through the process.