The good thing is there are some things that you can do to make the whole process a little less daunting.
Let's go ...
1. Saving for a deposit
Big tip here: The more you can save for a deposit the better. As a guide, we recommend that you want at least a deposit of about 20% of the purchase price of the home your looking to buy.
Now that can be tough, so don’t despair you may still be able to get a loan, it may just mean you need to think a little left centre. Check out our blog post about 'Getting a foot in the door' for a few options.
Back to the deposit - The greater your deposit, the less money you’ll need to borrow and less interest you will pay!
Do you have good saving habits? Yes? Well, these will also help when it comes to gaining approval for a loan.
Heads up: If you have less than 20% deposit you will most likely need to pay a one-off payment, known as Lenders Mortgage Insurance to secure your loan.
So here’s a few extra tips for boosting your chances of home loan approval
- Get a copy of your credit report It is important that you have a good credit history. You can request a free report from websites such as Equifax or Experian. The report is a snapshot of your current and historic credit information.
- Show you can save money A healthy savings history will give any lender confidence that you will be able to meet the requirements of your loan.
- Manage any existing debt Don’t forget to meet the repayments on existing debt like your credit card and don’t apply for any other forms of new credit.
- Job stability A lender will want to see evidence that you are financially stable, usually in the form of recent pay advices.
2. Right, I’ve got my deposit sorted, how much can I borrow?
Well, this will depend upon your current financial position. Lenders look at your income and assets, as well as your expenses and liabilities. There’s plenty of online calculators you can play around with to find out your borrowing power (we have one on our website) or you can speak to a lender.
If you’re an eligible first home buyer, you may be entitled to the First Home Owners Grant. You’ll find more about it on the State Revenue Office website.
3. What about my repayments?
The amount you need to repay will depend on the amount of money you borrow. Use our super handy Loan Repayment Calculator to get an idea of how much your repayments will be.
Once you know how much you’re repaying, there are a few simple things that you can do to reduce the amount of interest you pay over the term of the loan. Cha–ching!
This is as easy as making fortnightly or weekly repayments or increasing the amount of your regular repayments.
4. Extra costs to think about
When you buy a house, there are other costs you’ll need to cover. As a guide, set aside 5% of the property purchase price for things such as stamp duty, mortgage registration fees, pro-rata council rates and legal conveyancing fees.
5. Home loan options
There’s really no need to apply for multiple home loans from multiple lenders if you do your homework. You can use our online Key Fact Sheets generator to compare home loans.
Bonus Tip: Really look at all the features and benefits of a loan and don’t be tempted solely by the lowest rate.
Check the comparison rate, this is important. This is a true representation of the cost of the loan’s interest rate. It takes into account any upfront and ongoing fees that must be paid in relation to the loan.
Additional features such as an off-set account or the ability to make extra repayments without penalty and a redraw option can make a huge different to the total interest you pay.
When it comes to interest rates, as a guide, there are three choices:
• Variable rate – as the interest rate varies, so too will your loan repayments.
• Fixed rate – the interest rate remains fixed for a set period, which means your repayments remain exactly the same each month (great for budgeting).
• Split rate – as the name suggests, you can split your loan between fixed and variable.
There you go. What next?
It's true, home loans can be confusing, even more so if your new to the home buying game. Do your research, find your new home, talk to a lender and then cross 'Buy first home' off your list.
The small, small print: This is general information only and does not take into account your personal circumstances. Before acquiring any financial product, you should check if it is suitable for your needs and where appropriate seek independent advice. Bank of us lending criteria, terms and conditions including fees and charges apply. Full details are available on application.