SIX EASY STEPS TO YOUR BETTER
MORTGAGE
Finding
and purchasing a property is a
complicated and sometimes emotional
decision. Many buyers find their dream
home, but realise they must commit
immediately or lose the opportunity of a
lifetime. What is more, many don't know,
or are daunted by the home loan process.
If you were buying a property, would you
know what was required to secure your
finance, or have any idea of the
long-term commitment of making such an
important financial decision?
Here are six easy steps that will streamline the home loan process, and with a little preparation and organization, it will minimize the headaches and speed up your mortgage application.
Here are six easy steps that will streamline the home loan process, and with a little preparation and organization, it will minimize the headaches and speed up your mortgage application.
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By meeting with a mortgage broker in the
outset you may save yourself a large
amount of time, effort, and even money
in organizing your home loan.
Mortgage brokers will listen to your
needs, explain your options, recommend
lender products that match your
situation, and assist with paperwork.
Mortgage broker services can vary so it is recommended to use a mortgage broker accredited with PLAN Australia, who has high service ethics and the minimum education standard of Certificate IV in Financial Services (Finance/Mortgage Broking). Members of PLAN Australia can be found by using the Broker Search area.
Mortgage broker services can vary so it is recommended to use a mortgage broker accredited with PLAN Australia, who has high service ethics and the minimum education standard of Certificate IV in Financial Services (Finance/Mortgage Broking). Members of PLAN Australia can be found by using the Broker Search area.
What makes a PLAN Australia accredited
mortgage broker a cut above the rest?
- Broad selection - Hundreds of loans.
- Professional expert advice - Minimum education standards
- Smooth and efficient service
- Flexible solutions tailored to your needs
- Fair and ethical service - strict code of ethics
-
Scale and reputation - deal with one of the largest groups in Australia
Find out more
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By doing a little homework you may
already have some idea of how much you
can borrow, and the terminology of some
products on offer. It will also prepare
you for all the questions you will be
asking your broker when you meet,
remember, there is no such thing as a
silly question when it comes to finance!
How much can I borrow?
Your mortgage broker can assist you to work out how much you can and want to borrow but you should do some initial budgeting. Don't forget to factor in those additional costs that you will be paying including solicitors fees, moving costs, service connection fees and insurance.
How much can I borrow?
Your mortgage broker can assist you to work out how much you can and want to borrow but you should do some initial budgeting. Don't forget to factor in those additional costs that you will be paying including solicitors fees, moving costs, service connection fees and insurance.
Use calculators to get an
approximate idea of what you can afford.
- The estimates you obtain though online calculators may vary from the actual amounts, depending on numerous factors, so only use them as a guide.
- The most important factors in considering the amount you can lend will be your income, deposit, other financial commitments, interest rate and value of the property being purchased.
- Take into account current income and commitments, perceived needs in the foreseeable future, and changes in your family situation that could affect ability to service proposed borrowing such as maternity leave
- Loan Calculators
Am I eligible for any Grant's?
Your mortgage broker will be able to help you with your eligibility for the Federal Government's First Home Owner Grant scheme (FHOG). The scheme was introduced in July, 2000, by the Federal Government and involves a tax-free grant of $7,000 to first home buyers. All state and territory governments provide the grant through their respective revenue offices.
Researching the market
Do your homework and learn about home loan terminology, costs and features of loan products in the market to boost your knowledge.
Go to About Home Loans for information on "Fees, costs and charges, Types of interest rates, Loan products and features, and Types of lenders"
Questions
Write down any questions you may have. Make sure you clearly understand the situation so that you can make an informed decision. Contact your mortgage broker if you have any further questions, there is no such thing as a dumb question in finance!
Your mortgage broker will be able to help you with your eligibility for the Federal Government's First Home Owner Grant scheme (FHOG). The scheme was introduced in July, 2000, by the Federal Government and involves a tax-free grant of $7,000 to first home buyers. All state and territory governments provide the grant through their respective revenue offices.
Researching the market
Do your homework and learn about home loan terminology, costs and features of loan products in the market to boost your knowledge.
Go to About Home Loans for information on "Fees, costs and charges, Types of interest rates, Loan products and features, and Types of lenders"
Questions
Write down any questions you may have. Make sure you clearly understand the situation so that you can make an informed decision. Contact your mortgage broker if you have any further questions, there is no such thing as a dumb question in finance!
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Your mortgage broker can help you obtain
a loan pre-approval, which can speed up
the mortgage application process
greatly, and might mean the difference
between obtaining your home loan and
missing out all together. It allows you
to shop for property in confidence that
finance will be available. It also shows
real estate agents - and vendors - that
you're serious about doing a deal, which
can help in negotiations. If you're an
investor, having a pre-approved loan not
only means knowing your top price, it
also gives you bargaining power. And you
can act quickly once you've seen a
property you like.
Who offers it?
Most banks and lending institutions, it costs nothing to arrange and your mortgage broker will help you secure it. Some lenders offer on-the-spot pre-approval that can last up to two months, but this will vary from lender to lender. So work with your broker to explore which lenders and products best suit your situation before you settle on a property.
How it works
Your lender will look at how much you earn and your credit history in assessing your ability to repay the loan. On that basis, they'll decide how much they're prepared to pre-approve. Work with your broker to explore all your options.
How it's provided
Usually via a letter or certificate verifying that your finance has been approved and for a certain length of time. You can show the letter or certificate to a real estate agent or vendor as evidence that a lender is prepared to loan you a certain amount.
How much will you qualify for?
That will depend on your financial circumstances and the lender's criteria. Your broker will help you to work out roughly how much you can borrow on your salary and your existing financial commitments.
Who offers it?
Most banks and lending institutions, it costs nothing to arrange and your mortgage broker will help you secure it. Some lenders offer on-the-spot pre-approval that can last up to two months, but this will vary from lender to lender. So work with your broker to explore which lenders and products best suit your situation before you settle on a property.
How it works
Your lender will look at how much you earn and your credit history in assessing your ability to repay the loan. On that basis, they'll decide how much they're prepared to pre-approve. Work with your broker to explore all your options.
How it's provided
Usually via a letter or certificate verifying that your finance has been approved and for a certain length of time. You can show the letter or certificate to a real estate agent or vendor as evidence that a lender is prepared to loan you a certain amount.
How much will you qualify for?
That will depend on your financial circumstances and the lender's criteria. Your broker will help you to work out roughly how much you can borrow on your salary and your existing financial commitments.
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How to apply
Your mortgage broker will assist you through the application process. This will usually involve completing an application form (or submitting an electronic application), collecting and supplying required information/documents and signing required forms. You should request that when even possible the application be lodged electronically.
Building inspections
It is recommended to have the property inspected for any faults so you are fully aware of what you are buying into. The grounds surrounding the property, under the floor, into the roof and all through the house should be thoroughly inspected and recommendations documented.
Professional pest inspections should also be a part of this process. If you want to carry out these inspections your broker may need to insert a clause in the Offer, see your broker for further information.
What documents will be involved in the application?
Typically you will be required to collect and submit documents, which may include the following:
Your mortgage broker will assist you through the application process. This will usually involve completing an application form (or submitting an electronic application), collecting and supplying required information/documents and signing required forms. You should request that when even possible the application be lodged electronically.
Building inspections
It is recommended to have the property inspected for any faults so you are fully aware of what you are buying into. The grounds surrounding the property, under the floor, into the roof and all through the house should be thoroughly inspected and recommendations documented.
Professional pest inspections should also be a part of this process. If you want to carry out these inspections your broker may need to insert a clause in the Offer, see your broker for further information.
What documents will be involved in the application?
Typically you will be required to collect and submit documents, which may include the following:
- Loan application
- Proof of identity - documents to satisfy 100 point check
- Privacy declaration - your permission for the lender and other parties to access and share personal information about you, including your credit history
- Documents to verify your income and financial circumstances (except low doc and no doc, which require a declaration)
- Contract for the purchase of your property
How will the lender make the decision
to lend you money?
While all lenders have different policies and procedures for deciding on whether to lend money, typically they will look at the following:
Credit history - whether you have a previous good history of paying off your loans or any history of not repaying debts. The lender may request a report on your credit history from an external bureau, which is frequently Baycorp Advantage. The report will list information concerning your credit history, including previous credit applications and defaults if you have failed to repay any other debts.
Serviceability - whether your income is going to be sufficient to allow you to repay the loan. The lender's assessment will also take into account your repayment requirements on any other existing debts (such as car loans and credit cards). The lender may seek to verify your income. This could involve telephoning your employer to confirm your employment and salary, or calling your accountant if you are self-employed. The lender will usually use a loan calculator to work out whether your income is enough to allow you to repay the loan.
Deposit - The amount of money that you contribute as a deposit - the more deposit that you contribute, the more the lender may be prepared to lend you.
Loan to Valuation Ratio, or "LVR" - this is the term that lenders use to define the proposed loan amount as a percentage of the property value. Lenders generally utilise LVR based limits to determine the maximum amount they will lend, for any given property value.
Valuation
While all lenders have different policies and procedures for deciding on whether to lend money, typically they will look at the following:
Credit history - whether you have a previous good history of paying off your loans or any history of not repaying debts. The lender may request a report on your credit history from an external bureau, which is frequently Baycorp Advantage. The report will list information concerning your credit history, including previous credit applications and defaults if you have failed to repay any other debts.
Serviceability - whether your income is going to be sufficient to allow you to repay the loan. The lender's assessment will also take into account your repayment requirements on any other existing debts (such as car loans and credit cards). The lender may seek to verify your income. This could involve telephoning your employer to confirm your employment and salary, or calling your accountant if you are self-employed. The lender will usually use a loan calculator to work out whether your income is enough to allow you to repay the loan.
Deposit - The amount of money that you contribute as a deposit - the more deposit that you contribute, the more the lender may be prepared to lend you.
Loan to Valuation Ratio, or "LVR" - this is the term that lenders use to define the proposed loan amount as a percentage of the property value. Lenders generally utilise LVR based limits to determine the maximum amount they will lend, for any given property value.
Valuation
- The lender may seek to check the valuation of the property that you are financing. There are various ways of doing this, ranging from a desktop valuation (comparing the value of your house to other recent sales in the local neighbourhood), to a full valuation by a licensed valuer, including an internal inspection of the property. The lender may sometimes request you to arrange access for a valuer to inspect your property and may require you to pay for the valuation.
- Sometimes the lender's assessment of the property value may be less than your estimate, or less than you actually paid for the property. The valuation of the property is important to the lender, because it affects their Loan to Valuation Ratio ("LVR") calculation. Depending on the lender's LVR policies, this may impact the amount they are prepared to lend to you
Lenders' Mortgage Insurance ("LMI")
- LMI is an insurance contract for the benefit of the lender, which allows them to recover their losses if you default against your loan and they are not able to recoup the debt and their costs via other means. Most lenders require certain loans to carry LMI. If required, your broker or the lender may arrange for your loan application to be sent to an LMI insurer, frequently Genworth or PMI. The LMI insurer will also perform a credit assessment on the loan application and will advise the lender directly whether or not they are willing to insure the loan.
Who pays the LMI premium?
- If the loan LVR is above a certain level (generally 80% for a Full Doc loan), then the lender may require you to pay the LMI premium. Most lenders will add the LMI premium to the loan amount, so you don't need to have the money available in advance.
- Sometimes, the lender will
pay the LMI premium themselves,
at no cost to you. Generally
this will only apply on loans
with an LVR below a certain
level, for example, 80% or less
on a Full Doc loan.
After the lender has taken the above information into account, they will make a credit decision to approve or decline the application.
What are the types
of credit approval?
- Indicative - may be advised by a lender based on a general description of your circumstances, prior to you lodging any formal loan application. Not really an official loan approval, but rather, an informal and indicative advice that you appear to satisfy the lender's criteria for a given loan. Can be helpful during the shopping phase to get comfort over how much you can borrow.
- In-principle - is a firm indication that a formally lodged loan application appears to meet the lender's criteria, when the applicant is not in a position to supply some critical details, generally because the property has not yet been purchased. Can be useful to "lock-in" finance before you actually purchase a property, for example, if you plan to bid at an auction or plan to make an offer in a private treaty sale.
- Conditional approval - Firm approval in response to a formal loan application, but the lender has a specific requirement that must be satisfied before they are prepared to make the approval unconditional. For example, conditional approval subject to you providing proof of your income, or subject to the lender obtaining a satisfactory valuation of your property.
- Unconditional approval - Fully approved, without any conditions. In the next step, the lender will make a formal loan offer and supply formal loan documents. From this point, the process can move into the fulfillment stage.
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What happens at the Acceptance stage?
Lender's
offer letter - Once the
lender has approved your loan
application, they will send you
a loan offer letter. This is an
important legal document that
sets out the conditions,
including interest rates, which
will apply to your loan. It is
important that you read this
letter carefully and ensure that
you understand and agree with
the contents. If there is
anything that you do not
understand or agree with, you
should seek advice from your
broker, solicitor, or the
lender.
Lender's loan terms and conditions - Along with the offer letter, the lender will provide you with a copy of the detailed loan terms and conditions, which can be in the form of a contract, or a booklet. This is an important legal document, as it sets out the terms, conditions and obligations of you and the lender.
Accepting the loan offer - When you are happy to proceed with the loan and sure that you understand and agree to the conditions, you should arrange to sign and return the documents to your broker. Remember, that you will be entering into a legally binding contract, so be sure to seek advice if there is anything that you don't understand.
Arranging a mortgage over your property
Lender's loan terms and conditions - Along with the offer letter, the lender will provide you with a copy of the detailed loan terms and conditions, which can be in the form of a contract, or a booklet. This is an important legal document, as it sets out the terms, conditions and obligations of you and the lender.
Accepting the loan offer - When you are happy to proceed with the loan and sure that you understand and agree to the conditions, you should arrange to sign and return the documents to your broker. Remember, that you will be entering into a legally binding contract, so be sure to seek advice if there is anything that you don't understand.
Arranging a mortgage over your property
- Once you have signed the loan offer, the lender will start to make arrangements to take a mortgage over your property. At this point, if you have not already done so, it is best to engage a solicitor or licensed conveyancer to assist you.
- A mortgage is a legal mechanism that provides the lender with a charge over your property, as security in the event you fail to fulfil obligations under the loan contract. In essence, the impact of a mortgage is that you cannot sell or transfer ownership of your property, until such time as the lender has received all of the money to which it is entitled under the loan agreement. If you fail to fulfil your obligations under the loan contract, in particular in regard to making scheduled loan repayments, an exhaustive process will apply which will include as the final step, the lender's right to sell your property.
- How the lender arranges the mortgage - as part of the fulfilment process, the lender will conduct various procedures such as title searches to ensure that you are, or will become, the rightful owner of the property. These procedures are most effectively handled between the lender and your solicitor or licensed conveyancer.
Arranging the
settlement
- The last step prior to settlement is arranging a settlement date. While this may sound straight forward, in practice it can be quite complicated, depending on the circumstances. For example, if you are refinancing a property that you currently own, it will involve coordination between the outgoing lender and the incoming lender. If you are purchasing a new property, it will involve coordination between the seller's solicitor and their lender, along with your solicitor and your lender.
- Your solicitor, broker and lender will pre-arrange with you what money will need to come in (for example your deposit) and what money will go out, for example payments to the seller, stamp duty, your conveyancing and other costs.
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Q: What is settlement?
- Settlement is a fairly complicated process that involves
coordination between numerous
parties such as: real estate
agents, solicitors, loan
brokers, lenders, and the land
titles office. Your solicitor
and loan broker can be
invaluable in managing this
process for you.
- Settlement for a new purchase involves the transfer of
money from the buyer to the
seller and the transfer of the
property title from the seller
to the buyer. At the same time,
various other costs are settled
such as stamp duty, rates
adjustments and solicitor's
fees. Settlement for a refinance
involves the old lender releasing their mortgage and receiving money to discharge the old loan, while the new lender takes out a new mortgage, creates a new loan and pays money out to old lender.
- Once settlement has been completed, you will be advised
by your solicitor. Within a few
days, your lender will generally
send a letter confirming the
transaction details. It is
important to follow up anything
that you think may not be
correct as soon as possible.
- Your new loan account should be available within one day
through the available access
channels such as the internet,
telephone, or ATMs, so it's a
good idea to logon on make sure
that everything is working OK.
- From this point on, your new loan account is up and running. Remember to keep in touch with your broker if you have any questions or further requirements.
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