16 Jan Why It Is Important To Research Home Loans before Buying
Am I ready to buy a property?
When you start shopping around for a home loan, it’s important to think about how much you can repay without it affecting your lifestyle. It’s important to not only consider rates and fees, but also features such as the structure and flexibility of the loan. In preparing to purchase any property, saving up a deposit is the best preparation you can do.
Then, once you have bought your property, you’ll need to consider your repayments and how you can start paying off your home loan sooner.
Why are you buying a property?
You need to make sure you are ready to buy a property to live in, like many established families who need their own space or like many young Aussies that are now buying investment properties as their first property purchase and continuing to rent.
By doing this, they still have flexibility while working towards a cheaper alternative to owning their own home. Also, their dream home in the long term may not be the same as the one they want now so the extra time is used to save for the upfront costs of buying a house, such as stamp duty, agent fees and Lender’s Mortgage Insurance (LMI).
The basics steps to buying a property –
Analysing your borrowing capacity will help you decide what kind of deal to choose according to your current and future financial situation and also how much your commitments can be affected. How much can you afford or sacrifice between your income and expenses?
The bigger deposit the better when you’re saving for a home. A deposit of 20% of the purchase price plus enough to cover costs is ideal.
The bigger your deposit, the lower your loan to value ratio (LVR). This is the amount of the loan divided by the purchase price (or appraised value) of the property. If your LVR is higher than 80%, you will need to pay lender’s mortgage insurance, and the lender could charge you a higher interest rate. Avoid these extra costs by saving a bigger deposit to lower your LVR. You should also think about how you will pay for other up-front costs like stamp duty and legal fees.
➔ NSW Stamp duty depends on the value of the property and follows a sliding scale. Stamp duty is paid by the buyer when the contract is sent to Office of State Revenue.
➔ Registration Fee
Paid to the Land Titles Office (in NSW and NT), this fee is for the transfer of ownership to the buyer. It varies from state to state, with certain states imposing a fixed fee while others impose a variable fee based on the purchase price. The solicitor or conveyancer typically pays this on behalf of the buyer. The registration fee is paid to the Department of Natural Resources in Queensland or Department of Land Administration in Western Australia.
In South Australia, registration fee for properties worth above AUD 40,000 is AUD 194 plus 0.6% of value above AUD 50,000.
➔ Conveyance Fee
Solicitor’s or Conveyancer’s fees are paid for the documentation necessary for a property purchase. Property conveyance can be done by a solicitor (lawyer), a conveyancer (a land broker, land agent or settlement agent), or even the buyer and the seller.
Solicitor´s fee are generally negotiable and can be a fixed amount, an hourly rate (with or without ceiling), or a percentage of the property value (typically around 1% to 2%). GST is always paid, thus, it is worth asking if the fixed fee is already inclusive of the GST.
➔ Real Estate Agent’s Fee
Home loan brokers commission in Queensland is set by the government at a maximum of 5% of the first AUD 18,000 of the sale price and 2.5% of the balance of the sale price (plus 10% GST)
*Except for Queensland, real estate agent´s or home loan brokers fee is negotiable in all states.
➔ Lenders Mortgage Insurance (LMI)
If you need to borrow anywhere between 80% and 90% of the purchase price of your property most lenders will require you to pay LMI.
LMI protects the lender against the small risk that you unable to meet the repayments when you wish to start purchasing your property with a smaller deposit.
A history of regular savings in your bank account and a solid employment record ( at least 3 years) will make it easier for you to get a home loan.
Compare a few different loans before you decide. Ask your broker for a key facts sheet on each home loan so you can compare more easily. Once you choose the loan and have been pre-approved you’ll know what the repayments will be and how much you can afford to spend on a property.