between a linked rate and fixed rate? How much will you be able to borrow? Who should you ask for advice? Finding the best home loan can be a challenge. Need to get the lowdown on what the process entails? Our guide has all you need, from advice on taking out a home loan to saving for a deposit and working out how much you can borrow.
GETTING A HOME LOAN
What to consider when you’re looking for a Home Loan as a first-time buyer:
- It’s essential to think about how much you can set aside to pay as a deposit and look at what you are able to borrow before you go house-hunting. However, it’s also vital to think about the affordability of paying for your home and daily life;
- Monthly loan repayments to your bank are just one aspect of the cost of owning a home – they’re accompanied by the municipal rates and utility bills you may be used to from renting, but also by buildings insurance, and upkeep and maintenance of the property. Add in what you spend on transport, food and entertainment each month for an overview of the likely spend;
- It’s true that lenders take these factors into account when you apply for a home loan, but you need to consider them, too, so the costs are right for your personal circumstances.
SAVING FOR A DEPOSIT
Some banks will lend you up to 100 per cent of a property’s value (the so-called ‘loan-to-value’ or LTV).
Put down 10 per cent or more, however, and you’ll be able to get a better interest rate, and if you can find even more, you’ll have a wider choice of loan offers and the best available rates.
HOW MUCH CAN A FIRST TIME BUYER BORROW?
Lenders will look at both your income and expenses to see if you can afford the repayments on the loan. They’ll also consider what would happen if interest rates were to rise, and the monthly repayments increased.
As a rough guide, with standard expenses, you might be looking at a loan with repayments restricted to 30% of your gross income. This would be subject affordability after your monthly expenses have been taken into account, so you’ll need to be prepared with details about what you pay out each month in any loan repayments, to cover bills, for food shopping, going out, and so on.
A single buyer can apply for a home loan, but buying with a partner or another person can mean you can borrow more.
It’s worth getting pre-qualified by a reputable bond originator like Silent Partners. A Pre-qualification Certificate from Silent Partners shows how much you can borrow, and shows that you are a serious, pre-qualified buyer. An estate agent may ask to see this to check that you are a serious buyer. Be aware that this isn’t the same as a loan offer, which you would receive once you’d formally applied for a home loan on a property and checks and a valuation had been carried out.
With most home loan applications, credit checks and other validations are only carried out when you make a formal application for a home loan, but with Silent Partners, we do these checks and validations upfront and at our own cost making our Pre-Qualification Certificate the most trusted in the industry.
LOAN TYPES AVAILABLE TO FIRST TIME BUYERS
A normal home loan means each month you’ll be paying off the amount you owe and some of the interest on the loan. In the first years, it’ll be mostly the interest you’re paying off, so it will take time for the statements to show the amount of the loan decreasing.
If you made the repayments throughout the life of the mortgage, you would clear the debt and you would ultimately own the property outright.
An interest-only mortgage means monthly payments are just paying off the interest on the loan. The payments are lower than with a repayment mortgage but the total cost of the mortgage over its lifetime will be higher because the loan isn’t reducing. This is very rare, and most banks will not consider it. It would require an exceptionally large deposit.
At the end of an interest-only loan term, you still owe the lender the money. Bear in mind that you would need to show how you are going to pay off the lump sum when you take out the loan.
MORTGAGE TERMS AVAILABLE TO FIRST TIME BUYERS
The length of the loan term will affect how much you pay overall over its lifetime as well as how much you pay each month. Longer terms equal lower monthly payments on a repayment mortgage but you will have spent more overall because you will have paid more interest.
WHAT’S THE DIFFERENCE BETWEEN A FIXED AND LINKED RATE LOAN?
Loans can be either variable or fixed rate. With a fixed rate mortgage you’ll know how much you will be paying each month over the set period of the fixed rate applying to the loan. On the downside, if interest rates did go down, you wouldn’t get the benefit. Fixed rate loans are few and far between, with some banks occasionally offering a fixed rate option for a short period after which the loan reverts to a linked rate.
Linked rate mortgages are likely to have lower interest rates than fixed rate versions, but if you opt for one of these, your interest rate can change. It’s likely to do this if the Prime Rate rises or falls.
MORTGAGE BROKERS: COMMON MYTH BUSTING
When choosing a home loan, you may wish to use the services of a bond originator.
A bond originator like Silent Partners looks at multiple deals available from different banks. They provide you with better choice of loan offers, and will usually include your own bank. In this way, if your bank has special deals that are exclusive to existing customers, you will get the benefit of this offer.
If you are a first-time buyer, however, there are good reasons to use a bond originator. They will help you assess your finances and complete paperwork, which is likely to make the loan application process faster. They also have to offer you independent and impartial mortgage advice that is in your best interest. So, if you are completely new to the process a bond originator is a good option.
At Silent Partners, we will give you the best unbiased advice about taking out a mortgage; help you seek out the best deals; answer any queries you have; and use our inside knowledge to negotiate the best deal based on your financial history and current status.
WHAT HAPPENS WHEN YOU’VE FOUND A HOME?
Once you’ve had an offer accepted on the home you want to buy, you can apply for a home loan. You’ll need to provide documents to prove identity, income and show expenses. Background checks will be undertaken to check your credit history. The bank will also talk to you about valuing the property.
Once everything is complete and the bank has satisfied all its criteria, a final loan offer can be made.
Silent Partners will always apply to a range of banks, including your own, to see which one is offering you the best deal. Our automated loan application submission system ensures that all banks get the same initial application.
You can get started by contacting us directly or trying our online pre-qualification or loan application. Our personal details are;
Gary Christy: email@example.com
Mobile 071 370 5250
Brian Woodland: firstname.lastname@example.org
Mobile 071 173 3722
Ruben Manikam: email@example.com
Mobile 083 265 6743