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If you’re new to the real estate market, you’ll be flooded with advice on the best and worst things to do. Here are 10 common myths and misconceptions about the property buying process to help you purchase a house with confidence. Existing homeowners and seasoned investors will also find this post helpful.

 

Myth 1: You need a minimum 20% deposit to buy a house 

Having a 20% deposit canmake it easier for you to qualify for a home loan. However, that doesn’t mean you cannot buy with a lower deposit. By paying lender’s mortgage insurance (LMI), it’s possible to borrow money for a house with as little as a 5% deposit. Of course, you’ll still need to meet the lender’s serviceability criteria to qualify for a mortgage. 

 

Myth 2: You only need to save for a deposit when buying a house

The costs of buying a house go far beyond the deposit. You need additional funds to pay stamp duty in your state, which can be thousands of dollars depending on the size of your property. You also need funds to cover the inspection costs, and legal and insurance expenses, amongst other things.

 

Myth 3: You always need genuine savings to qualify for a home loan

When assessing your home loan application, lenders want to see whether you’ve saved your deposit yourself or not. That’s why they ask for proof of genuine savings, which refers to the money saved by you from your own income over a period of time. 

 

Most lenders require you to have a minimum of 5% of the purchase price in genuine savings. But if you’re renting a house, this condition may be waived off for you. A strong rental history showcasing timely payments may be accepted in lieu of genuine savings by some lenders, making it possible to qualify for a home loan without any genuine savings in your bank account.

 

Myth 4: Buying at an auction isn’t a good idea

Auctions present an emotionally charged environment that can lead to over-bidding. Additionally, there’s no cooling-off period in auction contracts. However, that doesn’t mean buying at an auction is a bad idea. 

 

Instead of avoiding auctions, you need to be careful by learning about comparable sales to determine the fair price of the property. It also helps to have a solicitor go through the sale contract in advance to avoid trouble at a later stage. 

 

Myth 5: It’s challenging to get a home loan if you’re self-employed

This one isn’t really a myth, but there are ways to get around this hurdle. Self-employed individuals may not qualify for a traditional home loan. However, they can apply for a low doc home loan to get their foot into the property market.

 

Low doc home loans require minimal documentation to verify your income. You can provide your bank statements, tax returns for the past couple of years and a letter from your accountant to qualify for this type of home loan. However, the interest rate on a low doc home loan may be higher than a traditional loan to compensate the lender for taking on higher risk due to lesser verification. 

 

Myth 6: You don’t really need a mortgage pre-approval

Yes, you don’t really need a mortgage pre-approval, but it’s good to have because of two reasons. First, a mortgage pre-approval gives you an estimate of how much you may be able to borrow, enabling you to narrow down your property search accordingly. Second, a lender will only pre-approve you for a mortgage if the information submitted by you meets their lending criteria. This may expedite the final approval as the lender would have already assessed your income and expenses at the time of pre-approval. 

 

Of course, being pre-approved doesn’t mean you’re approved for a home loan. However, it does increase your chances of approval unless your property is found unacceptable by the lender or your financial condition changes for the worse. 

 

Myth 7: You can skip property inspections

Getting pest and building inspections done by a professional can reveal important information about the property, including various defects that may cost you a bomb to repair in the future.

 

Myth 8: It’s always best to do it alone

A definite myth. While you have the choice of managing everything on your own, having a conveyancer on your team can help you avoid expensive mistakes and potential litigation in future. 

 

Many first home buyers also prefer to work with a broker to benefit from their experience and obligation-free service. Brokers are financial experts who usually don’t charge anything for their service and are mandated by law to act in your best interests. A broker can help you assess your financial situation better, negotiate home loan deals on your behalf and also help you lodge your mortgage application in a timely manner. 

 

Myth 9: The cheapest loan is the best strategy

The cheapest isn’t always the best. Go beyond the interest rate when comparing home loans, and factor in other things like different types of fees and additional features, before picking a loan that’s best suited for your needs. A mortgage broker can help you assess your requirements and suggest the features you need in a home loan.

 

Myth 10: Refinancing is for the wealthy; it costs money

Though not applicable for first home buyers, this is important information you need to know. Refinancing does cost money, but it can also save you a considerable amount of money when done right. So, if you’ve been on the same home loan for a couple of years, check out the latest deals on the market and see whether you can take advantage of the low interest rates on offer.

 

Now that we have dispelled some popular myths, we advise you not to fall for the fray. Property decisions are best taken with an open mind and after careful research. You can also use our various home loan calculators to make smart money decisions.

 

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