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You're over halfway through our e-course and so far, you've set yourself up for success by getting your personal finances into shape and setting super clear property goals.
This next module is all about getting your access to finance sorted. The best time to do this is before you hit the classifieds, so you can start property shopping with the confidence of knowing exactly how much you have to spend.
It's kind of like walking into a car yard to shop for a secondhand car. If you know you're approved for a car loan of $12,000, you know there's no point in wandering over to the expensive SUVs.
The same goes for property shopping: once you have your financial limit sorted, it gives you a guideline for the types of homes you can shop for.
1. Find home loans that suit your situation
To find a home loan that suits your situation, you first need to know what's most important in a mortgage.
The best home loan for first home buyers will often have a mix of the following:
- A low interest rate. You want the best possible value, which means the lowest possible rate that you qualify for.
- A low deposit loan. If you haven't saved a 20% deposit, you'll need to qualify for a loan with a lower deposit and a higher maximum insured loan to value ratio of 90%, or even 95%.f your deposit is less than 20%, keep in mind you may have to pay Lenders Mortgage Insurance. Use our calculator to work out how much LMI could you be charged.
- No expensive extra features. Some loans come with offset accounts and redraw facilities, which are great to have down the track, but may not be very useful when you first take out a loan. Monthly or annual fees often apply with these types of loans, so try to avoid paying for features that you don't need.
You also need to decide if you're going to go with a fixed or variable rate loan. A fixed rate loan means the interest rate is fixed or locked in for a set period (you can choose between 1 and 5 years), whereas a variable rate loan can change depending on market conditions.
Many first-time buyers prefer the certainty of a fixed rate home loan, and right now, they're the lowest they've ever been. For context, you can get a fixed rate home loan right now with less than 2% interest – just 2 years ago, it was unheard of to get a fixed rate loan for less than 4%!
Set your wishlist of home loan criteria so that you know exactly what type of loan you're shopping for. The most important choice is fixed or variable, and if fixed, how long you want to lock it in for (if you're unsure, 2-3 years is a good starting point). You also want to consider interest rates, deposit sizes and what type of bank you're comfortable borrowing with.
2. Compare your options and make a lender shortlist
You've got your loan wishlist. It might include things such as... the loan must be available with a 10% deposit. Or, you want a Big 4 bank, or at least a lender with bricks and mortar branches (rather than an online-only or neobank) so you can walk in and talk to the staff about your loan if you choose to.
One thing you probably won't have much wiggle room on is repayment type. While investors can often get an interest-only loan, you'll generally need to pay principal and interest from the outset.
With your loan criteria sorted, it's really easy to compare lenders and loans. On our first home buyer home loan page, you can tick the relevant boxes on the menu on the left (for example, you can choose to only see fixed rate loans, or only loans from certain banks) to filter out the loans that don't suit you.
This gives you a short, curated list of loans that could suit your situation. Then simply click "Go to site" next to the loan that you like the sound of, and you'll get all the info that you need to apply.
Every lender has different loan criteria, so you might be approved with one bank and not with another. This is why we recommend that you try to find 3 lenders to compare. This means you're not only looking at a few different options, but you also have a backup plan if one lender doesn't want to proceed with your application for any reason.
The other option is to find a mortgage broker to help you find the right loan for you. Mortgage brokers can help you with everything from finding a suitable loan to organising your home loan application and settlement. Here's how brokers work and how much they cost (hint: you'll be pleasantly surprised!).
3. Get ready to buy with home loan pre-approval
Comparing home loans and getting mortgage pre-approval allows you to work out exactly how much you can spend on a home.
Pre-approval also means you can make an offer with confidence when you find the right property, because your bank has already given you the go-ahead in principle.
So what is pre-approval? In a nutshell, pre-approval is a formal document prepared by a lender. It's an indication of how much money a lender is willing to lend you for a home loan.
Pre-approval requires a brief application, typically done online, involving some identification and financial information.
Most lenders will issue a pre-approval that lasts for 3 months.
When you've decided which bank you want to apply with, make contact with them so you can get the ball rolling on pre-approval. It can take as little as a few hours to put your application together, or a bit longer if you have to source lots of documents and information.
Once you make an offer on a property and it's accepted, your next move is to make a formal application.
The lender already has most of your info from the pre-approval application, so taking this next step is usually pretty straightforward. It's just a matter of supplying some updated payslips and any other required documents and formalising the approval.
After the loan is approved, you just need to wait for the bank to process your application. There is a point or date in your property purchasing process called "unconditional approval" – once this date is reached, you need to have unconditional approval from your lender.
This date is the point of no return because once it passes, it means that you are approved for finance, the contract is now locked in and you can count down the days till you have the keys to your new home in your hot little hands!
To sum up:
When you're ready to buy a house, you're so fixed on the actual property side of things that you can often forget that the property comes second.
First and more importantly is finance. Without access to a home loan, you can't get a home. It's like turning up to a shopping centre with no purse, no wallet and no credit card on your phone. You're just window shopping!
So, this module has walked you through the process of comparing home loans and getting pre-approved for a home loan.
With this in your back pocket, you can dive into the really fun part: shopping for your home!
Next week's module is all about how to shop for property like you were born to do it.
From how to find off-market deals and working with real estate agents, to learning negotiating tips from the experts, and how to make your offer stand out, we'll set you up with everything you need to know to buy your first home.
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