How To Get A Home Loan That Won't Send You Broke

How much can you borrow?
It might be stating the bleeding obvious but the most important thing to do, before you start house hunting, is work out exactly how much you have to spend and how much you can afford to borrow. That means taking a good look at your income, financial commitments and savings. It also means getting pre-approval on a home loan.

The amount you can borrow depends on:

Your income

Unsurprisingly your income is the most important factor determining the amount you can afford to borrow. It needs to comfortably cover the repayments on your loan. Most experts say “comfortably“ means repayments are no more than 30% of your gross salary.

You should also take into account other general home-owner costs like repairs, council rates, insurance and strata fees. When you combine these home-owner bills with the amount of your repayments, the annual amount should not exceed more than 40% of your gross salary.

Your financial commitments

As well as your income, lenders will look at your current financial commitments to calculate what you can afford to pay. They’ll take into account things like credit card and HECS debt.

Your deposit and savings

If you’re buying your first home, you’ll need to have some savings to use as a deposit. At least 5% of the cost of the property you want to buy is a start, but to avoid Lender Mortgage Insurance (LMI) you’ll need over 20%.

A good savings history will also help you get a loan, but it’s not essential. Lenders are interested in your ability to pay the loan now and in the future, rather than what you earned and spent in the past. If you’ve already got a home and a mortgage, a savings history is not important.

Be prepared for:

Possible rate rises

You should be prepared for interest rates rises when you estimate how much you can afford to borrow—even if you don’t get a variable loan. Most lenders will calculate a possible interest rate rise of up to 2% above the current official rate when deciding how much you can borrow.

If you can, pay that extra 2% anyway. Then you’ll hardly feel it if interest rates go up. If they don’t go up, you’ll have cut years and thousands of dollars off your loan.

Extra costs that come with a property purchase

Initial costs that you need to budget for when buying a home include loan Application fees, Building inspection fees, mortgage insurance, Stamp duty, Conveyancing fees and more. For a rundown on the extra costs you may have to pay go to extra costs.

Don't guess what you can afford!

Get pre-approval on your loan

Don’t make the mistake of only using a few online calculators to guesstimate the amount you can borrow. We’ve seen too many people lose a deposit because they’ve exchanged at an auction and then found out they couldn’t get a loan to cover the cost of the property.

Get pre-approval before you start the home hunt. You’ll save loads of time and stress.

Don’t over-stretch yourself

You might think that you can afford to spend more than 40% of your gross salary on your home every year, but you’re unlikely to convince a lender. Even if you think you can live on baked beans and commercial television for the next ten years—most lenders won’t agree. They know everyone wants some Thai takeaway, a good DVD and a big night out every now and then.

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0403 144 822
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michael.cormack@aussie.com.au
Mike Cormack
Aussie Home Loans Joondalup

Australian Property Selling Fast: Are We Moving To A Seller's Market?

Whoosh! There goes that unit you had set your heart on! The speed with which properties are selling is increasing, reflecting the return of consumer confidence. According to figures from Australian Property Monitors, the average number of days on the market of a Sydney unit has dropped by 19 per cent in the months from March to June. That’s just 68 days.

And the trend is pretty much across the board with both units and houses in every capital city hanging around the market for a much shorter timeframe. If you look at the average days on the market for both units and houses then there has been a 15 per cent drop in the length of time they are on the market in Sydney, 11 per cent in Melbourne and 10 per cent in Brisbane.

Back in March properties, houses and units could be on the market for three or four months and there was little pressure for buyers to rush. But now it’s turning into a sellers market and demand is outstripping supply in most sectors of the market. Even the reality TV show Selling Houses Australia is touting for properties that are on the market more than three months without selling, perhaps reflecting that few are hanging around for that length of time.

Of course just because it is currently a seller’s market that doesn’t mean you have to buy just any old property because you fear you will miss out altogether. Matthew Bell, economist at APM says there will always be other properties to buy within your budget. Never forget that buying property is most likely the biggest investment you will make in your life so you need to be sensible and not let your heart rule your head.

Bell suggests that you work out the maximum price you are willing to pay and stick to it; research the property you are considering; and don’t overpay simply to get in now. As he cautions: “It will cost you more in the end if you have to exit the investment because you can’t afford the repayments."

And there should always be time to do thorough research. While some properties may be snapped up in the day, the overall trend is still closer to the two-month mark. But in a bid to beat other buyers to a property, buying agent Patrick Bright of EPS Property Search suggests you do the groundwork first so that when you find a property, you can act quickly. “Get your finances pre-approved, select your solicitor to check the contract and get the name of the firm to do your pest or building inspections all beforehand,” says Bright.

While it is currently a seller’s market, the flood of property that traditionally comes up for sale in the spring could see the imbalance shift back towards more sellers than buyers. As a result Bright suggests that if you are upgrading, then now might well be the best time to sell while there is still a dearth of properties around which should translate to a speedier sale and a better price.

But not everybody agrees. Bell says APM does not see the market heading south going forward even after the removal of the first home owners’ bonus so there is no reason to sell just to take advantage of recent median price increases. Real estate is a very segmented market. For instance, first homes (mostly units) are going gangbusters with the first home owners grant bonus still a drawcard while some properties at the top end of the market are struggling a little more.

Indeed Cameron Kucher of RP Data says with the exception of the first home market, it is still more of a buyer’s market. But whether your particular segment is a buyer’s or a seller’s market, make sure you do your homework before you buy or sell.

Key Points

• Sale times have dropped, Sydney units for example by 19 per cent


• Be prepared: organise finance, solicitor and pest inspections


• Don’t overpay just to get into the market

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0403 144 822
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michael.cormack@aussie.com.au
Mike Cormack
Aussie Home Loans Joondalup

Tips for Buying or Building Your First Home

The extension of the Federal Government’s first home buyer’s grant to September 30 has been a boon for those looking to enter the property market for the first time. The $21,000 grant only applies to people aged over 18 years of age and those who are buying a new home, while first home buyers who acquire an existing home get $14,000. First home buyers need to enter into a contract to purchase an existing home or buy “off the plan” by the end of September to be eligible for the grant.

The grant has been a blessing for young Australians keen to fulfil a dream of building their own home, while providing a much-needed boost to the construction industry. However there are traps for young people jumping into the market without the discipline of saving and having a financial buffer to cover their mortgages if they lose their jobs after settlement.

Buyers need to be conscious of the traps in buying a new home, especially as the economy appears to be under pressure. As a direct result of the Global Financial Crisis, the Reserve Bank of Australia has slashed interest rates to historic lows to stimulate our economy. And as the world recovers, it’s guaranteed that rates will rise again and buyers need to budget for this. And more now than ever, buyers need to do their homework before committing to a property.

There are still good deals to be had, but extra caution is needed in selecting the right property as the first home buyer’s grant has created a price bubble in some areas. There’s no point paying $20,000 or $30,000 over market value just to get $14,000!

The first step in the process of building your home should be to arrange provisional finance and get expert advice from Aussie before entering into a contract for a first home construction. Buyers need to be aware of their financial limits and commitments during the construction period and following completion. It is worth bearing in mind that many lenders in Australia are reluctant to provide finance to owner-builders, and loans are usually restricted to the construction period.

Buying a property is usually the biggest investment decision you will ever make, and the stakes are high if mistakes are made. But with careful planning and research, buying a property can be very rewarding for both your bank balance and lifestyle.

Here are some important tips I have learnt to help avoid the most common traps:

1. Work out how much you can afford to spend before you even look, and only look at apartments or homes clearly advertised within that price range. Do not waste your energy looking in the wrong suburb – because you may end up biting off more than you can chew.
2. Look at as many properties as possible in your price range to get an idea of what you can afford. Check with Aussie’s skilled mortgage advisers to work out what loan product suits your needs – especially your borrowing limit!
3. When working out the best home loan for you, check the ongoing payments, especially in the fine print for monthly service fees and other charges.
4. If you are worried about interest rate rises, you can split your loan between variable and fixed rates and take an “each-way” bet.
5. Make fortnightly payments, not monthly, so the interest on your mortgage does not add up.
6. Remember a low start-up interest rate, or honeymoon rate loan does not mean you will be paying less for your property in the long term.
7. Make absolutely sure your home loan repayments do not overly impact on your lifestyle. You do not want to only eat baked beans for dinner for the next 25 years.
8. Be prepared for the monthly repayments to rise and fall during the life of your loan. Make sure there is some financial room to move if rates rise. If rates fall keep paying the same amount each month or fortnight, so you pay off your loan quicker by eating into the principal owing.
9. The best step you can take in the search for your first place is get pre-approval for a loan, which Aussie and some other lenders can provide, so you know exactly what you can afford.

Buying a property is one of the most exciting and financial things you can do in your life, so try and enjoy it. The better your research and preparation, the greater your enjoyment … and financial rewards.

If you enjoyed this post or found it useful, please consider posting a comment or 'Sharing' it using the button on the top left of the page.
0403 144 822
(08) 9300 0686
michael.cormack@aussie.com.au
Mike Cormack
Aussie Joondalup

Fixed or Variable Rate - Why Not Have Both?

Annoyed that you may have missed the opportunity to take out a fixed mortgage with rates set to move higher? Well, why not create your own?
It’s not such a crazy idea. You can simply turn your current variable home loan into a pseudo fixed loan by raising your repayments to match the current fixed term loan amount. And by doing so, you will not only be more likely to pay off your mortgage faster but at the same time you can enjoy all the flexibility a variable loan can offer.
So how do you go about it? In the first instance find out what the current repayments would be for a fixed loan. According to ratings house Canstar Cannex, the current average three year fixed rate of 6.94 per cent on a loan of $250,000 means a monthly payment of $1757.39. The average fixed rate for a five-year fixed loan is 7.65 per cent requiring a monthly repayment of $1871.94 on a $250,000 loan.
These repayments compare with $1552.80 a month on a current average variable rate of 5.62 per cent so by adopting this strategy you will either pay an extra $204.82 (with a three year fixed) or an extra $319.14 (with a five year fixed) a month.
If you choose to pay the equivalent of a three year fixed rate then assuming all things were to stay the same (which they are unlikely to do in reality) then you would save $52,398 in interest and pay off a 25 year loan five years and five months faster.
Clearly with the Reserve Bank governor Glenn Stevens current take on the outlook for rates, the variable is not going to stay the same, whereas for example the three year term of a fixed loan guarantees you that the rate will remain the same. Stevens recently hinted again that rates would probably start to rise again before Christmas.
But since the variable rate probably won’t jump 1.3 per cent in one hit (the difference between the standard variable and the three year fixed), there will still be some room to benefit for a few months yet. Indeed, the longer the average variable rate stays below the current fixed rate of 6.94 per cent, the better off you will be.
And the other good news is that you can maintain all the flexibility that traditionally comes with a standard variable loan – lump sum repayments, redraw facility and the ability to split your loan.
Peter Arnold of Canstar Cannex says: “You may well come out on top as long as the variable does not shoot up too quickly. While you may end up paying more after 18 months, by making the extra payments on your variable home loan that money is going towards paying off your principal. If you just had a fixed loan, this may not be the case.”
So having a do-it-yourself fixed interest loan through your variable is a bit like the old Claytons joke. It’s the fixed interest loan you have when you’re not having a fixed interest loan!
Key points:

• Repayments on variable loans are currently lower


• Use the difference to pay off your principal


• Reduce your loan term by years by paying off your loan faster


• Retain the flexibility of a variable loan

If you enjoyed this post or found it useful, please consider posting a comment or 'Sharing' it using the button on the top left of the page.
0403 144 822
(08) 9300 0686
michael.cormack@aussie.com.au
Mike Cormack
Aussie Joondalup