Where Do I Start Finding a Home Loan?

Sometimes a bank or other lending institution will just give you an informal amount that you can borrow, but they are not held to this in any loan application. You should definitely have a look at properties you want to buy in your preferred locations, to get an idea of price.

Raising a good deposit is important. A deposit can be provided by a family member or friend. For many lenders, a good savings record is not necessary. Generally you need 5% of the purchase price to have a good chance of getting a loan, as long as you have secure employment, a reasonable income and a good credit history. A 20% deposit will usually avoid the need for taking out mortgage insurance.

If you have a stable income and an employment you may be able to get a no deposit loan. You need more than 12 months’ continuous full-time employment or proven consistency with several employers. 100% home loans can suit people buying investment properties, especially for the first time. You should be aware that you may also have to pay stamp duties and mortgage insurance. You should be wary of no deposit loans. Some borrowers have got into severe financial hardship from these loans, including having the property repossessed by the lender, and being made bankrupt.

To find the right loan you can approach the banks and other lenders direct. Or you can you use a mortgage broker, who can advise you on a range of lenders and loans to suit your needs. A mortgage broker should never charge you for their services; they make their money from charging the lenders they provide with potential borrowers.

One thing a broker can assist you with is whether to get a fixed or variable loan, or a combination of the two. A fixed rate will be higher, but variable rates can increase at any time. A broker will have some idea whether rates or likely to rise or fall in the short to medium time.

You may also want to consider loans where you can increase your payments and pay off your loan faster, without incurring financial penalties. Since you will only be paying off interest at the start of the loan, the more you can pay off above the minimum monthly payment the sooner you will start to pay off the capital of the loan. Check with your broker for loans that allow you to do this without any added fees. Do not over-borrow.

Summary

Before deciding on a lender or loan:

• Get a pre-approval loan or estimate of what you can borrow.
• Check available and suitable properties to see if you can afford to borrow what you need, after the deposit.
• Speak to a mortgage broker for advice on a range of loans and lenders.
• Decide on whether to get a fixed or variable home loan, or a combination of both.
  
• Remember to factor in stamp duties and mortgage insurance.

Article correct at its author date: Dec 2006. Copyright Virtual Office Space, Any unauthorised reproduction of this article will be prosecuted to the full extent of the law. Credit Cards Australia.

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