Nowadays Aussies can compare home loans easily online but not all sites help you make the right choice.
To get the right loan, follow the simple 3-step process below: compare home loan rates; receive rates and options; then make your enquiry and a mobile lender will contact you within one business day to discuss your detailed loan requirements.
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Home Loans Guide
Before you go rushing out to compare home loans you need to be across your own finances.
This will take some effort and some honest answers. You will need to consider the following key points:
What's the approximate target value of the house you’re hoping for?
How much of the down payment on this amount do you have already saved? 5%, 10%, 20%?
Obviously if you have 20% this puts you in a much more favourable position.
If you have 10% you will have to balance whether it's better to wait a while until you have more of the deposit saved or to go ahead now and pay more interest on a larger loan with additional fees.
This decision may also depend on your credit score: a bad credit score may need a larger deposit to secure a home loan.
Bear in mind that when you close on a loan there will be fees to be paid.
These fees should be made clear by the lender upfront, but it will be your responsibility to read the fine print.
In any case, get an idea of what they are likely to be and factor them in to your decision of whether you can afford a home loan now.
What percentage of your pre-tax income will be used to make the mortgage repayment on your targeted mortgage? Over 35%, less than 30%?
This ratio is a major factor that lenders will look at when deciding whether to award a loan. If you can do the calculations upfront you will be in a better position to know if you can afford a home loan – use a financial calculator to help you.
A general guideline is that no more than 28 percent of your pre-tax income should go into your monthly mortgage repayment.
Do you have a stable employment history? Unless you have at least 2 years in a steady job you may be better off waiting to apply for a home loan as lenders like to see a solid employment history as well as a solid financial history.
If you are self-employed can you show adequate and consistent proof of income? If you are starting out in a new job how it may be better for you and the lender to wait a couple of years.
A budget planner will also help you to get a handle on your own finances and help answer whether you are in a financial position yet to apply for a home loan.
A good budget planner will get you to enter all details concerning your income and expenses.
This will allow you to clearly see what you spend your money on and how much is left over to save each month.
If it becomes clear that you need to find ways of saving more then the planner can also usually help you work out how much extra you will save by reducing or cutting down on some expenses – for example, stopping smoking or reducing restaurant visits or nights out or using your phone less.
When you go through this planner try to include as much as you can – go back through bills and verify how much you are paying each month.
The more detailed you can be the more accurate the end result.
If you check your pay-slip for any deductions made automatically every month, apart from tax (like superannuation, health insurance and company car contributions) you can then add these amounts back to your income for a better reflection of the true situation.
In order to check your credit rating most Australians will need to contact one of the two main credit reporting agencies:
Veda Advantage Public Access PO Box 964 North Sydney NSW 2059 Phone: 1300 762 207 Fax: (02) 9278 7333
URL: http://www.mycreditfile.com.au
Email: assist.au@vedaadvantage.com
Dun & Bradstreet Public Access Centre Dun & Bradstreet (Australia) P/L PO Box 7405 St Kilda Road VIC 3004 Phone: 132 333 Fax: 03 9828 3185
URL: http://www.dnbcreditreport.com.au
Email: customerservice@dnb.com.au
For people living in Tasmania contact:
Tasmanian Collection Service: GPO Box 814H Hobart TAS 7001 Phone: 03 6213 5555 Fax: 03 6234 2988
URL: http://www.tascol.com.au/reports.htm
Email: enquiries@tascol.com.au
You will need to verify your ID by providing the following information:
- your full name
- your address
- your date of birth
- your previous address
- your driver's licence number.
These credit reports should be provided free of charge (this may take up to ten days); if you require an express service then there may be a charge.
Here are 10 ways to improve a bad credit rating:
1. Clear any credit card debts you have as soon as possible
2. Reduce the differences between your current balances and the available limits on your accounts as much as possible - keeping balances under 30% of their limits is a good idea.
3. Create a personal budget - work out how much you can afford to pay back on the loan and gather documentation to prove it -the creditor will need to see evidence.
4. Establish a credit history using store cards or gas station cards.
Try to demonstrate that you can borrow responsibly as it will be beneficial to your future credit rating.
5. Always pay your bills promptly. Late or non-payment of bills develops a bad credit rating.
A personal finance budget plan that flags to you when bills need to be paid on the same day every month– preferably by direct debit – will help. Or use a reminder on your mobile phone to alert you about bill payment every month.
6. Request that your credit card company reports your credit limit to relevant authorities, so everyone is aware that you are well within your limit and have NOT maxed it out!
7. Make sure that your past credit history has logged all the loans you successfully paid back.
If they have missed a positive repayment send them a letter with statements to get it marked up against your name.
8. Keep away from any unnecessary credit accounts.
If you don’t need it, don’t apply for it in the first place! If you have several accounts with a short credit history attached this can lower your credit score.
9. Check your credit score personally so you will know what you need to do before you next apply for a loan.
10. Monitor your credit score on an ongoing basis, so that you know whether the steps you're taking are working.
If not, you will have to change your strategy.
It is fitting here to reiterate a few points before you finally apply for the home loan you have chosen.
Make sure that you know each of the following:
Your Credit Rating
This is an essential factor in whether you will be granted the loan you want and if so, exactly what the terms will be.
Lenders want to minimize their risk and if you have spent the previous months trying to improve your credit rating they will see that you have become financially responsible and will be more inclined to lend to you in the knowledge that they are likely to get it back.
This applies to anything you borrow but with a home loan we are talking a lot of money, which means it’s a bigger decision for the lender as well as for you.
If you know that your credit rating is still rather low, you may want to wait a while before applying for your loan so that you have more chance of securing it and get better terms.
How Much You Can Afford To Borrow
Knowing your own financial situation and being confident that you have assessed yourself accurately is the key to applying for a realistic home loan that will meet your own requirements.
If you have done your homework correctly, budget planning and using the calculators should have helped you to work out exactly what down payment you can make, what monthly mortgage repayment you can afford and the total amount you can afford to borrow.
The Cost of Borrowing
Before applying for a loan make sure you have some knowledge of market conditions and what the prevailing Reserve Bank cash interest rate is.
This will put you in a better position when you compare home loans and to know that the one you decide on is competitive.
Know all the options with interest rates – fixed rates, variable rates and split rates - understand them and how they work with the fees and charges to produce the comparison rate or the true cost of borrowing.
Having identified the loan provider, the loan and all the terms that most closely match what you are looking for, before you apply for your loan, you can check whether the financial institution you are working with is a legitimate approved credit provider by using the ASIC credit register.
Alternatively, to check the credit provider is registered or licensed you can phone ASIC’s Infoline on 1300 300 630.
You have compared home loans online, decided on the one that best suits you and have agreed to go ahead with your Australian home loan application. What is the procedure for applying online?
On the LowerBills site, once you express an interest in a loan by clicking on the appropriate button a mobile banker from the bank in question will contact you within 1 business day to discuss your situation. It's 100% free and there is no obligation.
He or she will then lay out the process of moving forward with the loan after you have both agreed that there is a good chance of proceeding and being approved and that's what both parties want.
Of course nothing will be agreed until the contracts are drawn up and signatures exchanged.
Following is a list of steps that you will usually go through to close the home deal that you need:
Offer of Purchase
It's a good idea to move as fast as possible once you have found the house you want. As a general rule of thumb people make offers of 8-10% below the asking price, which gives room for negotiation.
The Deposit
Usually included by the buyer as proof of intention to buy, this will be around 1% of the property's purchase price and is included in the offer price.
The real estate agent or the seller will hold the deposit until the contracts are signed, returning the deposit if the offer is not accepted or applying the deposit to the down payment on the home if the sale goes ahead. The buyer pulling out of the deal after the offer has been accepted may result in a lost deposit.
Contingencies
These are requirements set down in a contract that the buyer needs to satisfy before a deal can be agreed – for example the buyer's securing of suitable financing (if pre-approval has not been agreed) and a house inspection, where a professional will thoroughly examine the property to assess all structural concerns.
These contingencies will usually need to be completed within 14-30 days of acceptance of the contract.
The Contract
After the seller accepts an offer a contract is drawn up.
This is a legal contract that means the buyer is bound to buy the property if all specified contingencies are met. Included in the contract will be the selling price, proposed closing date, proposed possession date, as well as the contingencies.
Closing Documentation
This paperwork includes a title search to make sure the title is clear, title insurance which protects the buyer and the lender from any oversight about a claim on the property and an application for homeowner’s insurance.
Closing costs
The closing costs on a home deal will vary but may include a loan establishment fee, an appraisal fee, the cost of a credit report, a lender's inspection fee, title insurance costs, taxes and a fee for preparing documents.
Check that these are all in accordance with what your lender had informed you of, when you discussed the loan previously.
Final Arrangements
Before closing the deal make sure you have arranged for the first mortgage repayment and for utilities to be switched on and any other essential considerations.
Final Settlement
This is when the remainder of the purchase price is paid to the seller and the title is transferred to you as the new owner. The date this occurs will have been specified in the contract.
Many unforeseen difficulties and snags can some up at any time during the home closing process.
Following are some considerations you can make well before the final days of closure so that you ensure that everyone is happy on closing day, including you!
Compare and Contrast
As described in the "How to Compare Home Loans Successfully" section above make sure that you have done your homework to find the right loan that meets your requirements. If you've done your research well beforehand you'll know what those requirements are, you will have found a home that is within your budget and you will have a good idea of how you want to structure your home loan with loan term and mortgage repayments.
Receive Pre-Approval
If you've had pre-approval for your loan this part of the stressful process of buying a home has already been taken care of and has maybe allowed you to negotiate strongly with the seller to get a better price.
Read the Fine Print
It has never been more important to read the fine print on contracts before signing any paperwork. This applies to the contract drawn up for buying your house between you and the seller and the contract between you and your home loan lender.
Allocate Funds for Closing
Don’t forget that you will have closing costs that may be a sizeable sum, as well as your down payment amount. Allocate funds to cover this as this needs to be paid in cash and cannot be borrowed.
Find a Home Inspector
You will need to have your home inspected by a professional so why not have them at the ready for when the contract is presented. Make sure they are certified, that you attend the inspection yourself so that you can ask questions and that you receive a written report.
Search the Title
Avoid any last minute heartbreak by ensuring your lawyer searched the title records to make sure there are no existing claims on the property you are buying.
Arrange Home Insurance
Your home loan lender will need proof that you have a valid homeowner's insurance policy so make sure you have arranged this in good time before the closing date.
Fix a Possession Date
Make sure that you and the seller have agreed a possession date when you will move in to your new home. This is normally stated in the contract. Make sure you have a removals company hired for the date that you are moving on and don’t leave this to the last minute.
Read the Settlement Statement
The Settlement Statement lists all amounts payable at closing so read this carefully so that there are no hold ups on the settlement day due to confusion, mistakes or discrepancies.
Don't Close at the End of the Month!
The end of the month is the busiest time for closing agents and lenders, so try to avoid this time so that you get better service!
There are basically 2 approaches to paying off your home loan quicker:
Find a Home Loan with a Lower Interest Rate
If you find a home loan with a lower interest rate than you currently have it can be beneficial but you will have to weigh up the costs of the charges it will incur against the savings you make from the lower interest rate.
Sometimes loans offer great introductory or "honeymoon" rates but you will have to see what happens to those rates after the introductory period ends – it can work out to be more expensive to move in some cases.
The following section on home loan refinance will give you more information about this: it is not a decision to be rushed without weighing up all of the consequences.
There is sometimes a way of saving money on your loan without refinancing or switching loans.
You can ask your present financer to match the best deal you can find so you can avoid the refinancing costs; you can ask your lender to reduce or waive fees to hold on to you; or you can ask outright for a discount on your loan.
Increase the Monthly Mortgage Repayment or the Repayment Frequency
The only other way to pay off your loan quicker is to either increase the monthly repayment or to increase the frequency of that repayment.
With a typical principal and interest loan most payments in the first 5-8 years of a 25-year loan will go towards paying off the interest, so any extra payments you can make in that period will reduce the loan length.
You could also look to make your payments weekly or fortnightly rather than monthly and this will allow you to save on interest.
Beware of lenders that charge fees for making additional repayments. This should have been made clear to you when you first arranged your loan.
If there are fees you'll need to work out the savings you make over the course of the loan and weigh up whether it's worth it when you take the extra charges into account.
Home loan refinance is another term for switching home loans.
People usually do this because it will enable them to save costs over the life of the loan, but there are many things to consider before deciding whether it will be beneficial for you.
Compare Home Loans – Again!
Re-visit the loan offers on the personal finance sites and find out what's currently on offer –what the interest rates are (they may have changed since you arranged your loan.)
If the rates are lower then tell your present lender that you are thinking of changing and see what they offer you.
You can also ask for further discounts on the listed interest rates if there are a number of loans you are interested in. It never hurts to ask!
Better to stay with the Present Lender?
If at all possible, it is often better to stay with your present lender on a better deal than before, because you will save fees.
They may offer to lower the interest rate or waive some fees to make your loan cheaper – nothing is 100% fixed if the lender is trying to keep your business in a competitive market place.
Or Change to a New Lender?
Draw up a list of all the loans you are interested in, including any new offers on your present deal and compile a table comparing interest rates and fees.
Maybe use a mortgage switching calculator to help you with the calculations.
You will need to consider whether the savings you will make with a new lender will justify the fees that may be incurred by switching from your current lender (which may be substantial.)
Home Loan Refinance Fees Payable
Home loan refinance will involve fees, so it's no use just comparing interest rates and deciding to change lenders.
If you add the exit fees on your current loan to the start-up fees on the loan(s) you are interested in you will see the cost to switch loans.
Bear in mind that the Australian Government will ban exit fees as of July 1 2011, so the cost of switching loans may come down – although lenders may find ways around this legislation and incorporate them into higher fees elsewhere.
ACRONYMS
EMD: Earnest Money Deposit - EMD is Earnest Money Deposit. Your Earnest Money Deposit the down payment that is placed on a real estate property to make the offer to purchase legitimate.
NDI: Net Debt to Income Ratio - This is the ratio of your net disposable income to total debt commitments
DSR: Debt Services Ratio - This is the ratio of your loan repayments to your gross income. For most lenders this figure should not exceed 30% for singles and 40% for couples.
LMI : Lenders Mortgage Insurance/ PMI: Private Mortgage Insurance - If you are borrowing over 80% of the value of a property then your lender will probably require that your loan is insured due to the increased risk. It will usually be added to your monthly mortgage repayment. LMI protects the lender. Sometimes also called PMI.
LVR or LTV: Loan To Value Ratio - Loan To Value ratios are depicted as percentages and measure the ratio of the amount borrowed to the value of the property. For example, your home is valued at $200,000 with a mortgage/loan of $150,000. The LVR is 75% (debt/loan of 75%, equity of 25%).
TIL: Truth in Lending - Mortgage Brokers are required by law to provide any prospective mortgagor a Truth In Lending disclosure (TIL). The TIL includes pertinent loan information such as the amount financed, annual percentage rate (APR), finance charges, as well as an outline of the period required to pay off the loan.
APR: Annual Percentage Rate - Simplified, the APR is the rate that will be charged on a certain loan amount based on the amount of the loan, the life of the loan, plus any additional costs associated with the loan.
GFE: Good Faith Estimate - A GFE is a document your mortgage broker will provide to indicate the approximate costs associated with the closing of the loan - including title closing costs, mortgage and deed recording costs, lender fees and any prepaid figures.
GLOSSARY OF TERMS
Appraisal: A written analysis of the estimated value of a property. The lender uses this in determining your qualification for a loan.
Closing: Meeting where the lender, homebuyer and seller complete the sale and mortgage process, after which the home officially belongs to the buyer.
Closing costs: The money paid at closing to the lender – including a loan establishment fee, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The closing costs are typically around 2% - 6 % of the mortgage amount.
Credit report: A report showing your history of borrowing and repaying money that a lender uses to determine your suitability for a loan.
Down payment: A deposit paid by a home buyer to make up the difference between the purchase price (plus closing costs and fees) and the mortgage amount. Usually, 20 percent of the purchase price is required to avoid having to pay lenders mortgage insurance.
Equity/ Owner's Interest: The difference between the value of your home and the current amount left on your mortgage.
Interest Rate: The annual interest on a loan, based on a percentage.
Lock-in: A lender's guarantee that you will be granted a certain interest rate for a specific time period, e.g. 30 days prior to closing.
Mortgage refinancing: This is when you pay off one mortgage using another – usually in order to get a better interest rate, change the terms of your mortgage or to pay off debt.
Origination or Establishment fee: The fee charged by a lender for processing a loan.
Pre-approval: This is when you complete a mortgage application and supply a lender with all the necessary documentation to check your financial background and credit rating and receive approval for a specified mortgage amount before you have actually put an offer in on a property.
Pre-qualification: This is when a lender estimates what size mortgage you can afford. It is non-binding.
Principal: The amount of debt, excluding interest, left on a loan.
Term: The time period for your loan.
Title: The document that shows property ownership.
