You can turn your dream of owning a home into reality fairly easily in Australia.
You can select from a wide variety of properties from modern city apartments and traditional suburban houses to farms and large estates. The main source of finance available to Australian home buyers is the home loan. You can take out such a loan whether you are first or second home buyer, holiday home buyer or property investor. The choice of home loans is wide and so is the choice of lenders.
Property purchase finance is readily available from the big banks in the country and from specialised and non-specialised finance companies.
How to get the best home loan
It is usually easier for first home buyers to qualify for a home loan simply because they are at lower risk of default. At the same time, they have to meet a set of important criteria. They can also take advantage of the First Homeowner Grants provided by the government. In any case, the selection of a mortgage is extremely important as there is no such thing as one size fits all.
Loans for first-time home buyers
It is common for first home buyers to require finance from a lender in order to buy a property. They can select from a wide range of home loans. Some of these loans are specially designed for people in this situation. They share some common features:
- Smaller down payment
- Discounted interest rate for a set period of time
- Lowe fees
You can get one or more of these benefits. It all depends on the loan which you choose. It is perfectly possible to take advantage of all of these benefits.
Home loan eligibility
Each and every Australian citizen or resident who is over the age of 18 can apply for a home loan in order to pay for the purchase of a property. These loans are readily available to people who do not have sufficient assets to finance the entire purchase. All home loans come with qualifying criteria, however. The main ones include stable employment income, low debt-to-income ratio and good credit history.
Home loan limitations
You cannot borrow just any amount as a home buyer. The lender will determine the loan amount which they can grant to you based on your income and your ability to pay. The size of the deposit which you can place will be taken into consideration as well. Generally, the higher your income is, the more you will be able to borrow.
The lender will evaluate the property which you intend to purchase in order to confirm that it has the market value which is claimed by the seller. This is done to ensure that both the buyer and the lender are fully protected.
Possible challenges to be aware of
You would certainly want the borrowing process to go smoothly and to result in the perfect deal, but there are some potential issues which you need to watch out for. The first one has to do with the maximum loan amount which you can obtain. It may not be sufficient for buying your dream home. That is why it pays off to have some flexibility as a home buyer. You should do the math to see how much you can afford to pay for a house given the current interest rates and your income. Then you can consider a range of properties and pick the most suitable one.
You have to be absolutely certain that you want to become a homeowner. If you are not sure and you think that you may want to move to another place and sell the house in a year or two, it is best if you postpone buying a home. This will save you a lot of money and hassle.
You have to check what taxes you will pay as a home buyer and as a home owner. You should watch out for taxes charged on any of the special benefits which you will receive as a first home buyer. You have to confirm that taxes will not make borrowing considerably less affordable to you.
Often lenders will have the right to change the terms and conditions of the home loan. You have to read the loan agreement extremely carefully and to confirm that any such changes will not have an adverse impact on your ability to repay the loan.
The most important thing which you need to do when you consider taking out a home loan is to evaluate carefully both its pros an cons. You have to be certain that it matches your requirements and budget.
FAQs when getting a home loan
It is extremely beneficial to own a home. You will feel happy, secure and proud of yourself. A property is an extremely valuable asset. Home values have always increased historically despite short-term fluctuations so your wealth will grow with time as well. The major question is how to finance the property purchase. Most Australians have to use a home loan provided by a licensed lender. You certainly have a lot of questions about this step. Check out the answers to the main ones.
How high will the interest rate be?
The main factor which determines the size of the interest rate is the market, which in turned is influenced by decisions made by the Reserve Bank of Australia and by the government. The individual's financial situation and creditworthiness have an impact on the interest rate as well. If you have good credit history, you will secure a lower interest rate and vice versa. It all depends on how risky you are for the lender. In general, Australian home buyers can select from home loans with variable interest rate, fixed interest rate and a mixed structure.
Does personal debt impact the home loan?
Yes, it has a major impact on the loan actually. When assessing your home loan application, the lender will want to confirm that you have sufficient income to make the monthly payments. If you have a considerable amount of existing debt, your ability to repay the mortgage will be smaller and this will have a negative impact on the outcome of the application. Even if you get approved, you will be able to borrow less due to your other credit obligations. For all of these reasons, you need to pay off as much of your existing debt as possible before you apply for a home loan.
Will home improvement loans increase the outstanding home loan balance?
If you borrow against the equity which you have in the house, the outstanding balance on your home loan will become higher. However, this is not the only option which you have. You can take another home equity loan which comes with lower interest rates and fees. You can also go for a personal loan. It will have higher interest rate, but it will not impact your home equity and your mortgage. You can also use your savings to pay for the renovation. In general, renovating is totally worthwhile as it will bring up the value of your house.
Can I get a home loan with guaranteed approval?
There are no such home loans in Australia. There are low doc home loans which do not require traditional proof of income for qualifying, but they typically come with larger deposit. In general, each lender is required to perform a credit check on your and to ensure that you have the ability to pay back the loan.
How does the home loan repayment work?
Currently lenders offer home loans with a variety of repayment structures which borrowers can select from. You have to ensure that you understand the structure perfectly and that you can keep up with it. The traditional and perhaps the most secure of all repayment structures involves the making of regular payments, which consists of two chunks - principal portion and interest portion. At first, the interest portion is bigger, but then things are reversed. With this repayment option, you progressively gain equity in the property while the regular payments cannot become way too high all of a sudden.
Can I have more than one home loan at the same time?
You can have two loans backed with the same property. In this case, they are called first and second mortgage. The second mortgage is also known as a home equity loan because you borrow against equity which you already have in the house. It is also possible to have two separate mortgages on two separate properties such as your main residence and a holiday home.
What if I have difficulties with making the regular payments?
In this situation, you must contact the lender immediately to arrange a modification of the loan. Lenders can be quite flexible in such situations as they prefer to get their money back instead of dealing with the repossession of a property. The loan can be made easier to repay in several ways. Its term can be extended so that the regular payments become smaller. It is also possible for the lender to give you a repayment holiday. Sometimes, the lender can even reduce the interest rate.
Can I get support as a first-time home buyer?
Via a First Home Owner Grant, you can obtain between AU$ 5,000 and AU$ 25,000 directly. There are also introductory rate loans. They come with a lower interest rate for a set period of time, which is usually 1 year. There can be other types of special deals available from individual lenders as well.
What is home loan refinance?
This involves taking out another mortgage loan in order to pay off the first one. Homeowners refinance to take advantage of lower interest rates and/or to make the regular payments more affordable. This option should be approached with care, however. You have to ensure that you have sufficient equity in your property in order to qualify for the new loan. It is essential for you to check the closing costs of the deal and the total cost of refinance to ensure that you will really generate the expected savings.
What is a two-part home loan?
In this case, the loan is split into two parts. Fixed interest rate is charged on one part and variable interest rate is charged on the other. You will be allowed to make extra payments on the variable-rate part. This option gives you a higher level of certainty thanks to the fixed rate. At the same time, you will enjoy flexibility thanks to the variable rate.
How do I get a home loan with bad credit in Australia?
You should do your best to repair your credit as much as possible. You can use the professional assistance of a financial advisor for this. You should also demonstrate full ability to pay the loan. You should also consider non-conforming lenders providing home loans for bad credit. Even in case of approval, you will pay a higher interest rate so you must confirm that you will be able to repay the loan.
How can I boost my credit before making a home loan application?
You should pay all of your bills without exception on time. You should avoid taking out new personal loans and credit cards. You should close all accounts which you do not use. You should avoid spending more than a third of the balance on your credit cards.
Can I get a home loan without a credit check?
All lenders check the credit history of home loan applicants. There are no exceptions to this rule. However, there are lenders who are able to provide finance to people with blemished on their credit record. In such cases, the interest rate is typically higher due to the higher risk assumed by the lender.
Can you obtain a home loan if you have bankruptcy on your credit record?
You may get a home loan if you have been discharged from bankruptcy. Loans especially designed for such individuals are available in Australia. You may be able to qualify for a traditional loan especially if you have improved your credit record.
In conclusion, you need to prepare perfectly for taking out a home loan in Australia. You need to have stable employment income, low debt and good credit history. You must be certain that you can afford to repay the mortgage.