With hundreds of home loan options out there, how do you choose one that’s right for your situation? HomeStart’s John Oliver offers some tips on what you should look out for.
how much money you have for a deposit. Most lenders require a minimum 5-10% deposit. On a $300,000 home loan that can be as much as $30,000 plus stamp duty and other additional fees such as Lenders Mortgage Insurance.
If you don’t have that money in the bank, look for a lender that offers lower deposit loans and features that reduce the upfront fees and charges so you can get started sooner.
how much you can borrow. Research the housing market and work out how much you can afford to borrow.
There are ways of boosting your borrowing capacity like taking a shared appreciation loan, which enables you to borrow more so you can afford the house you want or the suburb you prefer, and keep your repayments manageable. In return, you share a portion of the property’s change in value when the house is sold.
out how much you’ll have to pay for Lenders Mortgage Insurance (LMI) if your deposit is less than 20%. LMI is the insurance that lenders use to protect themselves against any potential loss in the event you default on your loan.
There are ways you can avoid paying LMI, such as saving a larger deposit or looking for a lender that doesn’t charge LMI.
about how much flexibility you want with repayments and how important a low interest rate is to you. While a low interest rate may be appealing, it could mean compromising in other areas like the ability to redraw funds so it’s important to take into account your financial and lifestyle goals.
a broker. There’s a huge range of home loan options available so it’s important to do your research and work out the loan features that best suit your situation.
A broker can fast track this process for you, providing you with an assessment of your financial situation, browsing multiple options and recommending the loans best suited to you.
the service levels of different lenders. Find out how the approval process works, how long it will take, who your main point of contact will be, how they will communicate with you and how problems and issues will be resolved.
the finer details of the loans you are considering. Some lenders have penalty fees for late payments; using a redraw facility; making additional payments particularly on fixed rate loans or requesting statements out of the normal statement cycle. They may even charge you for making a payment from a different account type so be sure to ask so you know upfront.
the features and benefits of each loan against your desired loan criteria. To help you compare home loans, ask for a key facts sheet from the different lenders.
The key facts sheet
will give you the information you need, in a set format so you can directly compare costs.