Home Buyer’s Guide
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Buying a home is one of life’s biggest milestones, and in Australia, it’s something that many of us aspire to. Granted that purchasing a home is a cause for celebration, but it’s a fact that it will involve so many complicated processes. Things like mortgages, owner-builder construction, and repayment schemes could stress out even the best of us. For first-time home buyers who haven’t learned the ins and outs of the industry, it’s easy to feel overwhelmed.
Here’s where we come in handy. Intellichoice understands that potential home buyers can easily decide and plan for a new home when they have all the information relating to homeownership. That’s why we’ve developed this comprehensive guide on all things home loans. We’re your partner in confidently navigating the home loan process.
From figuring out which home loan product suits your needs, to learning about the step-by-step home loan application process, how to qualify, and of course, home loan Australia updates, we give you the latest information to reach your homeownership goals.
Do I Need a Home Loan?
Purchasing a home, whether it’s a small property or a vast estate, would always be a major expense. Home loans save you the trouble of having to come up with hundreds of thousands up to millions at one go in order to purchase a property.
Australian banks and lenders typically require a deposit of around 20% of the total home loan unless using Lender Mortgage Insurance ( LMI). Other lenders may approve with just 5% or even if you have a bad credit. Your home loan could be anywhere up to 95% of the purchase price of the home. The home’s price tag won’t be the sole expense – there are also other costs taken into account, including stamp duty, conveyancing fees, and other legal costs.
Home Loan Fees and Costs
As a first-time home loan applicant, be familiar with these different terms and concepts:
Principal – This is the amount of money you borrowed from the lender. The regular repayments will have a fraction that goes toward paying off the principal, so the amount goes down until you pay off the entire home loan eventually. There are interest-only loans, in which repayments only cover the interest rate the lender places on your loan. This is much cheaper but will make the repayment journey much longer because you’re not paying off the principal amount while at an interest-only arrangement.
Interest Rate – This is the amount that the bank or lender charges for borrowing money. The interest rate is expressed as a percentage, and may either be fixed-rate or variable rate. There have been multiple interest rate hikes from 2022 to 2023, spelling the end of Australia’s low cash rate.
Package Fee – Depending on your lender, the home loan will have a package fee that is the premium for what features come with the loan. For instance, if it has a credit card or an offset account feature, it may have additional fees.
Application Fees – Applying for a mortgage involves numerous legal processes. You’ll be paying for conveyancing fees, mortgage registration fees, and other government-issued fees. Each state and territory may have different
Lender’s Mortgage Insurance – Lender’s Mortgage Insurance (LMI) is a form of assurance for the lender that’s included in a home loan if your deposit is less than 20%. Try to avoid having to pay LMI as much as possible because it could add thousands to your loan at the onset.Stamp Duty – Each state imposes a levy to purchase the land. Stamp duty will vary per state and is set according to the value of the estate.
What Are the Steps to Home Loan Application?
Intellichoice can assist you in each of these phases:
- Organizing the required documents, including bank statements, proof of income current assets and liabilities, ID, and more
- Assessing your home buyer preferences and constraints
- Comparing home loan products according to repayment scheme, interest rate, extra features, and other considerations
- Ensuring that you are ready for the preliminary assessment by the lender
- Facilitating writing and submitting the letter of application
- Brokering with the lender to gain an approval
- Keeping contact with clients after loan approval for any queries or concerns
- Working with clients for refinancing, loan transfers, and other mortgage decisions
What is Pre-Approval?
Pre-approval is the pre-qualification for a certain mortgage that a bank provides either via public or proprietary information. If you want to secure a pre-approval, major banks and lenders offer an in-bank consultation, and from there you can complete the application process online. This usually takes anywhere from a few hours to a couple of days.
Getting a pre-approval is not a compulsory requirement and isn’t offered by all lenders. However, it’s a good barometer of your capacity as a home buyer as it signals that you are ready to make an offer on a given property.
Take note, however, that being pre-approved does not automatically mean you will actually be approved for the loan. It is just an indication that you are a preferred home buyer who can handle a mortgage when there’s stiff competition for a property.
First Time Home Buyers
Australia has a First Home Owners Grant (FHOG), a national scheme that provides a one-off payment for prospective home buyers who want to enter the property market.
There are different eligibility criteria and terms per state or territory. For instance, the New South Wales Scheme is valued at $10,000 for a new house or townhouse costing $600,000 and new home buildings valued at $750,000. Meanwhile, the Queensland First Home Owners’ Grant provides $15,000 for properties worth less than $750,000.
Only select home buyers can apply for the FHOG, and eligibility varies in every state, but these are the general requirements:
- Be a permanent Australian resident aged 18 years old and above
- Not a previous homeowner since the year 2000
- Not a FHOG recipient previously
- You are a current home buyer
- You plan on living in the property for no less than 6 consecutive months
For more information, visit the First Home Owner Grant page here.
Types of Home Loans Australia
Potential home buyers have several mortgage options to choose from. Each one has its own advantages and drawbacks:
Fixed Rate Home Loans
What: Fixed-rate home loans are set in a way that the interest rate is fixed over the duration of the mortgage period. For example, an interest rate of 4% per annum over a period of 10 years means that whether the Reserve Bank of Australia (RBA) changes the interest rate over that time, you will still be paying the same interest rate.
Why: Fixed rate home loans give clients a predictable path for their mortgage repayment journey. Regardless of industry fluctuations, your monthly budget for repayments will stay the same. Fixed rate mortgage is ideal for borrowers who want a stable repayment scheme.What to Expect: While fixed rate home loans are stable, the drawback is how inflexible they are. You won’t benefit from any interest drop should they happen. In addition, fixed rate mortgages don’t allow repaying earlier than the fixed term or selling the property without break-away fees.
Variable Rate Home Loans
What: Variable rate home loans are affected by the market changes. If the RBA announces a cash rate increase, banks and lenders will also increase the mortgage rates. In short, the interest you pay on your home loan changes as the industry does.
Why: Variable rate mortgages have several benefits. First, these loans allow unlimited repayments for when you are able to pay earlier. You’re not strictly bound to the mortgage period unlike in a fixed rate home loan. Variable rate home loans also don’t charge breakout fees as would a fixed rate term will. Lastly, you can take advantage of offset account or access to a redraw facility. What to Expect: Variable rate home loans fluctuate – prepare to repay higher or lower per month depending on the interest rate changes. If financial professionals project an interest drop, a variable mortgage will be advantageous. Otherwise, it could result in much higher repayments.
Split Rate Home Loans
What: Split-rate home loans are where you experience a portion of both the fixed rate and the variable rate in one mortgage period.
Why: Split rate home loans give clients the advantages of both a fixed rate and a variable rate loan. You have the stability that a fixed rate provides, while the variable loan portion brings more flexibility especially if the real estate market lowers the interest rate.
Aside from enjoying the best of two worlds, a split rate home loan allows additional repayments on the variable phase of the loan. This gives the option to repay faster than on a purely fixed rate setup.What to Expect: Borrowers can set up the split rate home loan at equal ratios, or you can put more weight on one over the other (e.g., 60% fixed, 40% variable rate). Be ready for the change once the portion of the loan ends – either an interest rate drop, or a higher rate depending on the industry trends.
Check Out Our Home Loan Resources
Your home buying journey is more informed with our tools here:
Property Buying Calculator (link) – This calculator estimates all the costs that come with buying a property. You can factor expenses like lender fees, insurance, stamp duty, and more.
Home Loan Calculator (link) – Use this smart calculator to get an estimate of how much you can borrow based on income and living situation.
Comparison Rate Calculator (link) – If you have two home loan options but can’t decide which is better, our comparison rate calculator factors in the interest rate, upfront fees, and charges to display a single percentage rate. It won’t take into account LMI, government charges, and lender features.
Frequently Asked Questions (link) – Whether you’re a new home buyer or a client who wants to refinance an existing home loan, you will have a lot of questions. Our FAQs covers the most timely and important details for you.
You can always reach out to our Intellichoice home loan experts to discuss and weigh your options.
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