GETTING A HOME LOAN
When it comes to getting a home loan, the process can seem daunting - especially if this is your first application.
However, by being aware of the home loan application process - and the documents and information you may be asked to provide along the way - you can ensure everything goes as smoothly as possible.
Documentation You May Need
During this application process, you'll be asked for several pieces of documentation. This includes showing that you have enough savings to cover the deposit on your property and other fees that may be applicable.
If you are self-employed, you may be asked to show tax returns and other financial information from the past two years, while anyone who is employed will need to show evidence of their payslips.
Research and Pre-Approval
The first thing you'll want to do is research the type of rates available from different lenders. Home loans can differ significantly and you will want to factor several considerations - including fixed or variable rates, payment plans and other terms and conditions - into your final decision.
You'll also want to set yourself a budget and determine the amount of money you need to borrow. Getting pre-approved for this amount could be a wise idea if you are still shopping around for the perfect property. Pre-approvals tend to last for up to three months and can help you move more quickly once you have found the perfect property.
Finding the Perfect Property
Buying a property is a long-term investment and is not a decision to be taken lightly.
You will want to consider factors including location, age of the property, size of the unit or house and your own long-term plans - for example, you may be looking for a home for a growing family or downsizing after adult children have flown the nest.
Once you've found a home that appears to tick all the boxes, you'll need to ensure the relevant checks are carried out - including building inspections, as well as any relevant strata checks. A conveyancer should also be hired to check over the contract.
Making Your Purchase
Depending on whether you are planning to buy at auction or make an offer on a property, you'll find there are some slight differences in the transaction process.
If you are buying at auction, you will usually be required to pay a ten per cent deposit at the moment the hammer falls. Your deposit is then held in trust by the real estate agent.
Processing Your Loan
At all stages of this process, it is important to ensure your lender or bank remain informed - they will be able to process your loan more quickly if they are aware of all the details.
This information includes the contact details of your solicitor or conveyancer, real estate agent and vendor, as well as a copy of the sale and purchase agreement.
Once a valuation (if required) has been carried out and all the other documents have been received and processed, your lender will grant formal approval of your loan and the documents will be sent to you.
At this time, you will need to sign these documents and return them. Your solicitor or conveyancer will then liaise with your lender regarding the drawing of your loan and payment for your purchase to the solicitor's trust account upon your settlement.
Different Types of Home Loans
Consider the advantages and disadvantages of types of home loan - and how they may or may not benefit your unique circumstances.
The right home loan option for you will depend largely on your current financial situation and what offers are available at the time - and you'll want to ensure you carry out careful research before you make your decision.
Standard Home Loan
Standard variable home loans suit most borrowers due to their flexibility. Changes can be made throughout the life of the loan as either your personal finances or economic conditions vary.
If you are an owner-occupied borrower, principal and interest repayments could suit you, as the balance is reduced from the very beginning.
Fixed Rate Home Loan
Fixed rate mortgages set the interest rate at one level for a nominated term - usually one to five years. You have the benefit of knowing exactly what payments are required of you during that period.
You may end up paying either less or more than the standard variable rate, but the advantage is that you have locked in a rate that you're comfortable with and the uncertainty of the situation is removed.
Construction Home Loan
A construction home loan is specifically for borrowers who are building a new home and can be paid in stages to the builder.
As you make these progress payments, some lenders also require valuations along the way.
Once construction is complete, the loan reverts to the standard variable for the type of loan you have chosen.
Line of Credit Home Loan
With this loan, you don't have to make repayments until the line of credit is full drawn.
Interest is calculated on the daily loan balance and provided this and the monthly fees accrued do not exceed the line of credit, the interest can be added to the loan.
Most accounts of this kind also come with the added convenience of credit access via debit card or cheque book.
Offset Home Loan
An offset account is a savings account attached to the mortgage, with the balance used to offset the interest charged on your loan.
Some lenders also provide a free redraw and additional repayment facility on their variable rate loans, which have the same benefits as an offset account.