Home Loans Explained

Fit Finance Home Loans Explained

Home Loans Explained

Obtaining a home loan can be a daunting prospect especially when there are so many lenders with a number of options available. The Fit Finance team will take the time to explain all the jargon and make the process as simple as possible. Finding a reliable banker or broker can be daunting, but we want to eliminate that stigma.

We’re here, and we’re ready to support you on your home loan journey. Let us take care of the hard yards on your behalf – keeping you informed along that way. Just get in touch and discuss your requirements with one of our team members! Home loans explained and made simple, right here, with Fit Finance.

Do Your Research

  • Talk to a mortgage broker or use an online borrowing capacity calculator to work out how much you can borrow. A mortgage broker can assist you by completing an approval in principle to provide further confidence with your loan amount.
  • Research the market, review websites like realestate.com.auto see what properties are available based on your budget and preferred locations.

 

Make an offer on a property. It is recommended that your offer is subject to various conditions which may include:

  • Finance – 21 days min
  • Pest & Building
  • Due diligence

 

Please note, if your offer is accepted you will usually be expected to make an initial deposit (around 5% of the purchase price) which will be held in trust by the agent.

 

Engage a solicitor / conveyancer

 

Engage a mortgage broker or your bank if you already have a relationship

 

The financier / broker will assist you with working out a suitable loan for you based on your individual circumstances. They will assist with the application and putting together all of the required information to support your loan application.

 

Your broker will act on your behalf to obtain finance approval by the finance date – if applicable. The settlement date is usually a couple of weeks after the finance date.

 

Once approved your solicitor will be notified and they will prepare for settlement i.e.

  • Complete various searches on the property.
  • Calculate the adjusted rates
  • Liaise with the vendors solicitor
  • Prepare transfer document and prepare for settlement i.e. book a settlement time and arrange cheque direction.

 

Your broker will work with your financier and obtain the loan documents for you to execute. These must be signed and returned several business days prior to settlement.

 

Things to note:

  • The mortgage must be witnessed by either a solicitor, Justice of the Peace or Com dec (in Qld).
  • The property being purchased must be insured prior to settlement. The financier will most likely require a Certificate of currency prior to settlement.
  • The funds required for purchase usually consist of the bank loan and your contributions (savings). Your savings may be deposited into your account held with the financier so that they may debit your account on the day of settlement, or you may deposit the funds into your solicitors trust account, and they will provide the funds required at settlement on your behalf.

 

Once finance has been approved and prior to settlement you should do the following:

  • Take out Home insurance
  • Arrange for utilities to be connected on the day of settlement
  • Open transaction / savings accounts with your financier if you intend to move your banking.
  • Arrange your move, either with family and friends or a moving company.

 

After settlement:

  • You have moved into your new home – congratulations.
  • Your solicitor will usually provide you a breakdown of their service and the cheques provided at settlement.
  • Your financier will provide you a draw down letter outlining what funds were required for settlement and where they came from i.e.
  • There are many costs associated with buying a property some are:

    • Pest and building inspection
    • Conveyancing fees
    • Government Fees – registration and title search fees
    • Bank fees – application fees, valuation, settlement, and legal fees, LMI
    • Stamp duty
    • Transfer duty
    • Moving costs
    • Other costs can include: home & contents insurance, connecting utilities, council rates & body corporate fees.

If you wish to apply for a home loan please give us a call. We will take the time to explain the process i.e.

  • Discuss needs and objectives
  • Complete an application and needs analysis
  • Provide supporting documents – payslips, bank statements etc
  • Broker will complete an analysis based on your circumstances, research the market and make a recommendation to you.
  • Prepare & submit submission to your agreed lender
  • Once finance is approved an approval letter will be issued and loan documentation prepared.
  • Sign loan documents including mortgage (mortgage to be witnessed by JP, Com dec or solicitor)
  • Return loan documents to broker / financier.
  • Provide insurance certificate of currency for subject property and ensure all funds are available for settlement.

An interest rate is the cost a lender charges for lending the money. The interest rate is usually quoted as a percentage and is calculated daily (on the loan balance) and charged monthly (usually on the last business day of the month).

When it comes to choosing a type of interest rate, you may opt for Fixed, Variable or a combination of both.

Is a home loan whereby the interest rate is set for a period of time often between 1 & 5 years? If the banks interest rates change, yours remains unaffected. The benefits of this are that you have locked in your interest rate, and you know the amount you need to pay each month during the fixed rate period. A fixed rate protects you from rising interest rates and makes it easier for you to budget.

A variable rate home loan is a loan with an interest rate that can change at any time. This means that when interest rates are low you’ll pay less in your monthly repayments, but you’ll run the risk of paying more if it rises. Unlike a fixed rate home loan, the repayments for a variable rate loan fluctuate according to changing interest rates and may differ from month to month.

Most home loans are contracted for 30 years. (Options are available for 40 year loan terms, however, only a limited number of financiers offer this & it is not the standard loan term).

 

When considering an appropriate loan term you should consider the following:

  • What age do you and your partner (if applicable) intend on retiring.
  • Will the loan expiry date exceed your retirement age.
  • If it does, how will you meet the ongoing loan repayments or clear the residual loan balance.
  • Strategies may include: Sale of investment property or other assets. Income from investments, reoccurring superannuation income, lump sum repayment from superannuation or downsizing home.
  • A longer loan term reduces the contracted loan repayments and provides flexibility, however, the borrower may pay more interest

An offset account is a savings account or transaction account linked to your home loan account. The account’s balance (or a proportion of that balance) is ‘offset’ daily against your home loan balance, and as a result you’re only charged interest on the difference between the total loan balance and the amount offset.

A guarantor home loan is a loan which is supported by a guarantor in order to rely on that persons security or income. Circumstances of when this may be applicable are:

  • Husband and wife own a property, but the loan is only in one applicants name. The other applicant must provide a guarantee if the property is to be used as security.
  • Applicant borrows funds and requires equity in another property owned in another name or trust.
  • Family guarantee – family member provides a guarantee to applicant and offers to use their security to assist with 20% deposit for their home loan

Most lenders require a minimum 20% deposit. If you have less than this then lenders mortgage insurance may apply. Your deposit may consist of the following:

  • Savings
  • Cash Gift
  • Proceeds from sale of property / investment / asset
  • Equity in another property which is being offered as additional security
  • Guarantee – guarantor allows equity in their property to be used as additional security

Work out how much deposit you need – set yourself a goal! i.e. Decide on how much your home will cost and how much deposit you will contribute i.e. Normal deposit is 20% of purchase price, however you may contribute less if you are willing to pay lenders mortgage insurance. Don’t’ forget you will also need to cover the costs associated with the property purchase – stamp duty, legal fees etc.

  • Do a budget – analyses what your net income is and where you spend your money. Based on your current monthly savings, calculate how long it will take you to save your desired deposit.
  • Review your spending to see where you can cut back i.e. take your lunch to work, review mobile phone plan, insurance policies and other subscriptions. Review other lifestyle choices like overseas holidays, use of motor vehicle, eating out and daily coffees etc. Cut back where possible.
  • Set up a designated home deposit savings account. Deposit your target savings amount on your pay day and live of the rest. Stick to your budget.
  • Review other offers possibly available i.e. first home owners grant and stamp duty concessions.

Loan to value ratio is a calculation most lenders use to help determine how much they will lend. Most lenders will lend up to 80% of the value of the property being purchased / offered as security i.e. LVR = Loan amount / security value X 100.

E.g. if you purchased a home for $500k and borrowed $400k then the LVR would be $400,000 / $500,000 X 100 = 80%

If you wish to borrow more than 80% then you will require additional security or may be asked to pay lenders mortgage insurance.

Lenders mortgage insurance or LMI is an insurance that may be applicable when the loan to value ratio exceeds a certain ratio often 80%. LMI is paid by the borrower but is designed to protect the lender i.e. if the borrower defaults and is unable to meet their loan repayment obligations the lender may sell the property to clear the loan If there is a shortfall, then the LMI insurer covers the shortfall to the lender.

The First Home Owner Grant (FHOG) was introduced back in July 2000 for first-time homeowners. It’s a nationwide scheme, but is funded by the individual states and territories, with each state or territory having its own legislation for the scheme.
The current grant in Qld is $15,000 and is subject to the following criteria:

 

Age – You (and any co-applicants for the grant) are natural people aged 18 years of age or older.

 

New home – The home you are buying or building must be new and valued at less than $750,000 (including land).

 

Citizenship – You must be an Australian citizen or permanent resident (or applying with someone who is).

 

Previous grant recipient – You or your spouse must not have previously received a first home owner grant in any state or territory of Australia

 

Previous home ownership – You or your spouse must not:

  • currently own property in Australia that you live in
  • have previously owned property in Australia that you lived in
  • have owned a home before 1 July 2000, whether you lived in it or not.

 

Investment properties – If you have owned an interest in residential property since 1 July 2000 that has been solely used for investment purposes, you may be eligible for the grant on a subsequent property.

 

Residence requirements – You must move into your brand new home as your principal place of residence within 1 year of the completed transaction, and live there continuously for 6 months.

 

 

Refer to the Australian Government website for full criteria: https://www.qld.gov.au/housing/buying-owning-home/financial-help-concessions/qld-first-home-grant/apply-first-home-grant/first-home-check-eligibility

Is the process of applying for a home loan prior to finding a property you wish to purchase. The benefit of this is that it provides you with some comfort regarding how much you can borrow and give you greater confidence when your negotiating the price for your home.

A redraw facility is a home loan feature that gives borrowers the option of accessing funds from any extra repayments made on their variable rate home loan.

The following types of savings are considered to be genuine savings if they add up to be more than 5% of the purchase price:

  • Savings held or accumulated over 3 months.
  • Term deposits held for 3 months.
  • Shares or managed funds held for 3 months.
  • Equity in real estate (varies depending on the lender).
  • If you’ve been renting for the last 3 months then some exceptions may apply.
  • Even salary sacrificing under the First Home Super Saver Scheme can be acceptable.
  • Genuine savings are generally required when you are borrowing more than 90% of the property value

We have solutions available where borrowers can provide as little as 2% deposit towards their home purchase. To discuss the various options to see which solution is right for you please call us on (07) 3040 6988 or request a call back by completing the form below.

Home Loan Solutions Made Easy

Get in touch with our friendly and professional team to discuss home loans and the best solution for you, your family, and your lifestyle. Apply online today!

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For trusted loans, fast approvals, and transparent communication, give the Fit Finance team a call today – home loans explained and made simple.