Finance

For most people, the most important aspect of any home purchase is obtaining finance – that is, getting a bank or other lender to agree to loan you money to purchase a property. While all those zeros can be daunting, with a little education and preparation you’ll be able to make informed decisions to get the best outcome possible. This page will help you manage some of the important financial considerations that can be the difference between winning and losing.

Get your finances in order

The better shape your finances are in, the more likely you’ll get a loan. Plus, getting yourself financially prepared will make transitioning to a home loan far easier too.

Start by taking stock of your current financial position. Note down what you’re earning and where you’re spending (and look for ways to reduce the latter). Chances are your bank will have resources (like apps) to help you better manage your money and there are plenty of third-party apps out there too.

A big part of getting your finances in order is demonstrating to lenders that you can budget. It doesn’t sound particularly sexy we know, but budgeting can be really satisfying when done right. Your aim during this period should be to crush your debts (start with credit cards), reduce frivolous spending, and get your finances working like a well-oiled machine.

Get your finances in order

Determine your deposit

Generally, most experts recommend having a deposit of 20% of the price of the property you’re considering, excluding other fees (more on that below). Aiming for this percentage generally provides a good platform from which you can pay off your mortgage, meaning lenders will have more confidence in lending money to you.

If you don’t have a 20 percent deposit and don’t want to wait, one option is to pay for Lenders Mortgage Insurance (LMI) which applies to people with less than a 20 percent deposit. This can be included in your loan repayments so that it’s spread out over the course of your mortgage. You may also consider finding someone to be your guarantor – someone who offers their own property as extra security for your loan so that you can access a mortgage with a lower deposit.

Determine your deposit

Understand all the costs

Buying a property comes with additional costs that you need to factor into your budget, or
you can face nasty financial surprises down the track. These include:

  • Stamp duty and taxes: These are applied to all homes purchased in Australia and vary depending on the price paid for your property. First home buyers may be eligible for concessions, but you’ll still need to pay a fee for the registration of your property’s title to the Land Titles Office, and you might need to pay GST too.
  • Building and pest inspections: If buying an established home, it’s advisable to have a professional inspect the property for defects and/ or pests, which can range between $300-$600.
  • Conveyancing and legal fees: The full process to settle a property typically ranges between $1,500-$3,000.
  • Mortgage registration fee: This gives the bank the right to sell your property if you can’t pay your mortgage.
  • Bank fees and loan application fees: These fees depend on the type of mortgage you choose – speak to your bank or broker.
  • General expenses: Factor in home ownership expenses such as council and utility rates as well as building and contents insurance.
Understand all the costs

Choose your loan type

There are different loans available to suit your needs – whether you’re a first home buyer, investor, or somewhere in between. Your loan needs to factor in your budget, lifestyle and appetite for risk. Your options include:

  • Fixed interest rate loans: You lock in your interest rate for a period usually up to five years, giving you certainty around what your repayments will be each month.
  • Variable home loans: Your interest rate can go up or down at any time, offering greater risk but also greater flexibility to pay off your loan sooner.
  • Principal and interest loans: You pay the interest that accrues on your home loan as well as chipping away at what you owe on your property (the principal).
  • Interest-only loans: You only pay the interest on your mortgage, not the principal. These loans are more suited to investors, and are generally not available to first home
    buyers.

Shop around and compare rates and conditions to ensure you get the best loan for your needs. When looking at home loan advertising, keep an eye on the comparison rate which will give you a more holistic view of the cost of the loan as it includes fees.

Choose your loan type

Finance FAQs

Which loan type should you choose?

There are a number of decisions to make when choosing which loan is right for you. Should you choose a fixed interest rate or a variable rate loan? Should you go Principal and interest or Interest-only? Your decision will need to consider a number of factors including your stage (first home buyer vs experienced investor) and your overall financial situation. It’s a good idea to get advice from an expert such as a mortgage broker so you can make an informed decision around which loan is right for you.

What is a pre-approval, and why do you need one?

Once you’ve chosen a loan type and selected a lender, it’s advised that you obtain pre-approval from that lender. A loan pre-approval means that a lender has agreed, in principle, on the amount of money they’ll lend you towards buying a home. It’s not the same as full or final approval, but it gives you greater certainty around what you can borrow, so you can work out your purchase limit.

How big a deposit do you need?

The golden number is generally 20 percent of the price of the property you’re considering, excluding other fees. If you don’t have a 20 percent deposit, one option is to pay for Lenders Mortgage Insurance (LMI) which applies to people with less than a 20 percent deposit. This can be included in your loan repayments so that it’s spread out over the course of your mortgage. You may also consider finding someone to be your guarantor. A guarantor offers their own property as extra security for your loan so that you can access a mortgage faster.

Should you use a mortgage broker?

There are a lot of important decisions you need to make when determining the right loan for your needs. It can be helpful to discuss your options with an experienced professional such as a mortgage broker who can demystify the process, explain the jargon, and help you track down the best rate and loan features available that work best for you.

Are you eligible for government support?

There are some great government incentives to support first home buyers to achieve their dreams. Check out the links below to the First Home Owner Grant and the First Home Loan Deposit scheme to see if you’re eligible to participate:

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