Getting a home loan may seem complicated for many people, and it’s common to feel overwhelmed at first. However, being well-informed and prepared can improve your chances of successfully obtaining a home loan.
How to prepare for your application
#1 Understand the costs Understanding the costs of how to get a home loan can be tricky, but having a clear breakdown of the fees is essential to know your financial limits. Here are the key fees to consider:
- Application fees: Some lenders charge this fee to cover administrative expenses related to setting up your new mortgage.
- Stamp duty: This is a one-time government fee imposed when you purchase land or property. The amount varies based on factors like your location, property cost, and whether you’re a first home buyer.
- Conveyancing fees: These are charges for transferring the property from the seller to the buyer. Lenders mortgage insurance: Lenders mortgage insurance (LMI) is a type of insurance that lenders get to protect themselves from the possibility of not getting back the remaining loan amount if you, the borrower, can’t keep up with your loan payments.
- Building and pest inspection: This inspection is done to check the quality and structural integrity of the home.
- Service fees: Monthly fees might be levied by the lender to cover loan administration costs.
- Annual fees: Some lenders apply annual charges to package home loans.
- Redraw fees: If your home loan allows you to access extra repayments you’ve made, some lenders may impose a redraw fee each time you use this feature.
Keep in mind that fees can vary between banks, and home loans. It can also differ from person to person because every situation is unique. So, it’s always wise to consult your broker for a detailed breakdown. The more you understand about the costs involved, the quicker you’ll be able to determine where you stand in the buying process.
#2. Saving for a deposit A deposit is one of the biggest factors in your mortgage application process. A deposit is the upfront amount you contribute towards the purchase of your home, while the remaining balance is borrowed as a home loan from the bank. While a 20% deposit is not always required, it will assist with avoiding the lenders mortgage insurance and can therefore benefit the borrower throughout the life of the loan However, there are various options available if you don’t have that much money saved:
- Family guarantor: One of the options is to consider having a family member act as a guarantor. They provide additional security in the form of property they own which could mean you don’t need to save the full deposit.
- First Home Guarantee (previously known as the First Home Loan Deposit Scheme): If you’re a first home buyer, you might be eligible for this scheme, which allows you to have a deposit of just 5%. However, not all lenders participate, and there are specific criteria to meet. Click here for more information to see if this applies to you.
- Save for the deposit: In some cases, creating a budget can help make the saving process more attainable. Create a spreadsheet to determine how much you need to save each month, and you’ll reach your deposit goals in a shorter time.
#3 Check your credit score Banks assess your reliability in managing debts before approving a home loan. They do this because they want to ensure that you responsibly pay your bills on time. To evaluate this, they examine your credit history and calculate your credit score. Your credit report will include details of your personal loans, credit card usage, buy-now-pay-later products, and any defaults or bankruptcies. If you’re curious about your credit score and where you stand, or if you want tips to improve it, consult your mortgage broker for guidance on obtaining your credit score. Knowing your credit score is an invaluable asset that can set you on the right path for your mortgage loan. If you understand your financial situation more clearly, the mortgage application process can be more streamlined.
#4 Find the right mortgage broker Choosing the right mortgage broker can make the application process notably more streamlined, especially as a first home buyer or as someone in a less favourable financial situation. When searching for a mortgage broker, always look for someone with good reviews, and someone you feel comfortable with. Have a chat with them first to see if you’ll be a good fit and always look for someone that has good communication skills. Buying a house is a big investment, possibly the biggest you’ll make in your life, and it’s important to have the right person by your side through the whole journey. A good mortgage broker will offer you guidance along the way to make sure that you’re getting the right home loan for your circumstances.
A free service that makes the home loan process so much easier
No matter where you are located across Australia, our dedicated team is prepared to assist you in achieving your financial goals. At Cherry Lending & Finance, we are committed to providing you with the support and guidance you need to thrive in your property and financial endeavours. If you’re confused about how to get a home loan, talk to us!
