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Getting Started
A little bit of groundwork at the outset can make a big difference in finding a home that’s right for you, as well as helping you manage your mortgage.
CHECK YOUR CREDIT RECORD
When you apply for a home loan, lenders will take a look at your credit record – which shows how well you have handled credit in the past. It’s worthwhile checking your credit record before you apply for a home loan, so you have a chance to follow up and correct information on your credit history if you believe it to be inaccurate.
To access a copy of your credit history, click the link below to visit Veda Advantage
OBTAIN A PRE-APPROVAL
It makes good financial sense to secure a pre-approval from a lender before you start the home hunting process. This will tell you just how much you can afford to spend on a property, as well as provide a piece of mind that you won’t miss out on your ideal home because of delays arranging finance
DETERMINE HOW MUCH YOU WANT TO BORROW
A key step in buying your first home is determining how much you can afford to borrow. One of the best ways to do this is draw up a budget that shows your total monthly income compared to your anticipated monthly expenses. Once you have purchased a property you will be tackling an array of new outgoings including rates, insurance and maintenance costs – in addition to your regular mortgage repayments. It is important that you will be able to comfortably meet all these expenses.
It is also worth thinking about where your career is headed. For example, is a salary increase likely? And give some thought to your plans for the future. You may intend to spend some time travelling or start a family. These could have a significant impact on your budget, both now and in the future.
Give plenty of thought to the sort of features you are hoping for in your new home. Aspects like location, the number of bedrooms and the availability of parking are all important considerations. Buying a property is a major financial commitment and ideally your home should provide a comfortable lifestyle for years to come.
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The Costs Involved
Buying a home involves a range of upfront costs that you will need to factor into your budget.
STAMP DUTY
Stamp duty is a state government charge that may be payable on the purchase price of your home and on the value of your mortgage. The amount payable varies depending state and territory. Below is the Victorian State Revenue Office website or use the Mortgage Gallery calculators or see the table in the centre page.
www.sro.vic.gov.au
While stamp duty can be a significant upfront expense, valuable concessions are available for first home buyers
LENDERS MORTGAGE INSURANCE (APPLIES TO DEPOSITS LESS THAN 20%)
If you borrow more than 80% of the value of the property that you are buying you will need to pay Lenders Mortgage Insurance (LMI). This insures the lender (not you, the borrower) against non repayment or default. By protecting your lender against default, LMI allows you to borrow with lower deposits. Your lender will organise LMI on your behalf, so it’s not something you need to shop around for.
The LMI premium you can expect to pay will be based on the size of your mortgage and the purchase price. One of the best ways to reduce the cost of LMI is to save a larger deposit. However, this is not always possible, and to make the premiums more manageable some lenders will let you add the LMI premium to the home loan. This is called ‘capitalising’ the expense, and it lets you pay the LMI bill gradually rather than adding it to other upfront expenses.
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Other Costs
LOAN COSTS
- Loan application fee
- Valuation and lenders legal fees
CONVEYANCING FEES
- Pre-purchase advice
- Settlement fees
INSPECTION COSTS
- Building inspection
- Pest inspection
INSURANCE
- Property insurance
- Contents insurance
MOVING IN COSTS
- Council and water rates
- Utilities connections
- Mail redirection
- Furniture removal
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Jargon buster
Five tips to paying your mortgage faster
PAY FORTNIGHTLY
When you make your repayments monthly, you make 12 payments each year. Try paying half the full amount each fortnight. With 26 fortnights in a year, you’ll pay the equivalent of an extra month’s repayment – without feeling the pinch
MAKE EXTRA REPAYMENTS
Even small amounts can make a major difference. On a loan of $250,000, paying just $10 extra each week can see you mortgage free more than 3 years sooner. And you could slash $19,500 off the total interest bill in the process.
MAKE YOUR LENDER A ONE STOP SHOP
Having all your financial needs serviced by one lender is more than just convenient – it can also save you money. Some banks will package all your accounts together and cut account keeping fees
GET AN OFFSET ACCOUNT
An offset mortgage account can mean big savings on your home loan interest. You only pay interest on the difference between your home loan and your savings. It’s like earning a tax-free return on your cash.
GIVE YOUR MORTGAGE AN ANNUAL HEALTH CHECK
Our personal circumstances can change rapidly, and the loan that was right for you a few years ago may no longer offer the best solution. Use our free home loan health check to see that your loan still offers the features and service you need at a competitive rate
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Jargon buster
Learn the language of home loans with our easy to follow jargon buster
COMPARISON RATE
A rate that includes upfront and ongoing fees as well as the advertised interest rate. It will assist you in identifying the true cost of the loan.
CREDIT LIMIT INCREASE
Increasing the amount of money in your home loan.
DEPOSIT BONDS
Are a guarantee or bond that substitutes for a cash deposit between signing contracts and settlements. Deposit bonds can be up to 10% of the purchase price and can be for all or part of the deposit amount required.
EQUITY
The difference between the amount owed on your home loan and your home’s value.
FIXED RATE
An interest rate that allows you to lock in to a specific rate of interest, with fixed monthly repayments for a given period of time.
INTEREST ONLY
A type of loan that requires repayments on the interest only and, as such, leaves the loan principal untouched.
LOAN TO VALUE RATIO (LVR)
The LVR refers to the size of your home loan expressed as a percentage of your property’s value. For example, if you borrow $300,000 to fund a property worth $375,000, the loan is said to have an LVR of 80% ($300,000 is 80% of $375,000).
PRINCIPAL AND INTEREST
A type of loan where each repayment is comprised of interest plus a reduction in the loan principal.
PRIVATE TREATY
The sale of property subject to privately negotiated terms (as distinct from sale at auction).
SWITCHING
Changing from a variable loan to a fixed rate loan. Can be useful if you are concerned about possible rate rises.
VARIABLE RATE
An interest rate that will vary in line with changes to interest rates.
VARIATION
A change to the home loan agreement.