Taking your first step on the property ladder is exciting, but some things may be confusing. For instance, you may wonder how much you can borrow for a house or whether you need a pre-approval or not? This post puts together some essential points to keep in mind before applying for your first home loan.
- Consider your financial health – It’s quite important to consider how much money you can put down as a down payment and how much of your mortgage you can afford to pay in a monthbefore getting ready to buy a home.
Having a deposit covering 20% of the purchase price is considered ideal, but it’s usually possible to borrow with a smaller amount. However, you’ll pay Lenders Mortgage Insurance (LMI) on top of the deposit if you’re putting down less than 20%, which will add to your costs. You’ll also need to plan for costs other than the deposit, such as stamp duty, a loan application fee, legal and conveyancing fees, insurance costs, and inspection fees. Such accessory costs can often be up to 5% of the purchase price.
- Find out about applicable grants for first time home buyers – TheFirst Home Owner Grant (FHOG)is a national scheme where funds are allocated to first time home buyers depending on which state they reside in. The scheme was started in 2000, and homeowners must fulfil the required criteria to be eligible for the funding. The funds received under the grant can be used as part of a home loan deposit, and there’s no obligation to repay the money.
If you’re struggling to save a deposit, it’s worth checking your eligibility for the First Home Loan Deposit Scheme to purchase your first home with just a 5% deposit and no LMI.
Here’s a list of the other government-sponsored schemes currently available to first home buyers:
- The Home Builder Grant
- The First Home Super Saver Scheme
- The Family Home Guarantee Scheme
- Stamp duty waivers/concessions (Differs between states)
- Shop around for a mortgage – Before seeking pre-approval for your mortgage, it’s wise to shop around a bit. What if you get a better deal somewhere else? You may qualify for only one kind of loan, but it might still be worth looking around. Hashching gives you access to negotiated home loan dealsfrom multiple lenders through expert mortgage brokers.
- Applying for pre-approval – Once you’ve decided that it’s time to purchase your first home, you will have to get a pre-approval for the loan. To get a pre-approval you will need to be prepared to provide proof of your deposit, a monthly expense sheet and income documents. That’s because a lender will usually assess your financial situation in detail before pre-approving you for a mortgage. Getting pre-approved therefore gives you a fair estimate of how much you might be able to borrow, helping you narrow down your property search.
However, being pre-approved doesn’t necessarily mean you’ll qualify for a home loan. Though useful, a pre-approval is just a preliminary step in the home loan application process. You’ll still have to apply for final approval once you decide on a property. But the chances of getting approved for a mortgage are generally greater once you’re pre-approved, unless your financial situation changes for the worse or your property fails the lender’s valuation.
You can apply for a pre-approval directly with a lender or file your application through a mortgage broker.
- Consider Having a Team by Your Side – Once you know the amount you can borrow and get the pre-approval, you can hire a real estate agent to find a home for you. A real estate agent can assist you in finding a house in the right location. Most people prefer to have their homes near locations that provide quick transport connections, offer proximity to the city, and easy access to schools, hospitals and shopping centres. While you can find properties in such locations through online listings, a real estate agent can give you information about comparable sales in the area and even help during the negotiation process. The real estate agent would typically provide you with the rest of the team as well – for example, home inspectors and insurance agents.
Many first home buyers also choose to work with a mortgage broker to simplify financing their homes. A good broker can help you understand your eligibility for a mortgage and offer you competitive deals from multiple lenders. Brokers are experts who are required by law to act in your interest and usually don’t charge you anything for their service. If you choose to work with a broker, they will even help you prepare your loan application and lodge it in a timely manner to minimise chances of rejection due to trivial reasons like missing documents or incomplete information.