4 Things You Need to Know About Home Loans | First Home Buyers

4 Things You Need to Know About Home Loans

4 Things You Need to Know About Home Loans

Posted on: 19th March, 2020

Last updated on November 20th, 2020 at 10:05 am

Purchasing your first home is an exciting process, however, saving for a deposit and obtaining a home loan can be an arduous process. As a custom home builder, we are more than ready to help you build your dream home, but first, you need to obtain a home loan.

Before you approach a lender or mortgage broker, you will need to be well-prepared. We can prepare a fixed quote for your new home to submit to your lender but you will also need to get your financial affairs in order to create the best impression possible. So, start paying down credit cards and any other debts such as personal loans to ensure your credit rating is positive.

The more knowledge you can acquire about the whole home loan application process before you step into the fray the better, so here are some terms you need to get to know:

What is mortgage insurance?

Mortgage insurance is only applicable when you borrow more than 80 per cent. It protects you in the case of defaulting on your loan (not being able to make your monthly repayments for a period of three months). If you default on your loan, your lender may start legal proceedings to obtain the arrears which could mean you need to sell your home or the bank may foreclose. You do not want this to happen!

Anyone can become ill, have an accident or lose their job, so taking out mortgage insurance is an important step to protect you against default in the event of unforeseen circumstances and disasters such as the recent bushfires and COVID-19 pandemic which have adversely affected Australians throughout the country.

If you are self-employed or in another high-risk category, your lender may add Lenders Mortgage Insurance (LMI) costs to your home loan. Unlike mortgage insurance, LMI protects the lender, not you, if you default on your loan repayments.

What is a deposit?

The deposit on a home loan is the cash required by the lender before approving your home loan application. Usually, this is 20 per cent of the overall loan you will need to purchase your block of land and build your home. If you are eligible for a First Home Buyer’s Grant, this should assist you with raising money for the deposit. In Victoria, the grant currently gives eligible first homeowners: $10,000 towards buying or building a new property up to the value of $750,000; and $20,000 if that property is a newly built home in a regional area, and contracts were signed between 1 July 2017 and 30 June 2020. For more information visit the State Revenue Office of Victoria. This site also has a calculator to find out how much land transfer (stamp) duty you will need to pay on top of the cost of your land.

As well as land transfer duty, you will need to save for other costs on top of your deposit, such as bank fees.

What is interest?

The interest on your home loan is a percentage you pay on top of the principal (which is the total amount you are borrowing). Interest on home loans are currently at historic lows but shop around for the lowest interest rate you can find to keep your repayments as affordable as possible. A good mortgage broker can do this for you, as well as finding the right type of home loan that meets your particular needs. Remember that interest rates could rise again at any time so make sure you have some wriggle room in your budget to cover this if need be. Your mortgage broker may advise you to take out a Fixed Interest Home Loan where your interest payable is fixed for a set term (usually three years) then reverts to a Variable Home Loan (where the interest payable changes due to market factors and the bank's discretion).

What are bank fees?

Most lenders will charge you a home loan establishment fee which varies from around $500 to $700 and a settlement processing fee (usually around $100). These fees will generally be added to the total owing in your home loan. We understand that as a First Home Buyer, the home building process can be daunting, which is why you need a home builder that can walk you through the process every step of the way. Achieve Homes is a custom home builder in Melbourne and Canberra that can guide you through your home building journey.

Get in touch with our team today at sales@achievehomes.com.au.

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