Home loan advisors are there to help you take the next step on your journey to home ownership – but how can you make the meeting a productive one?
Anyone who’s been on a date knows having something to talk about or even doing some research on their prospective partner’s interests helps to keep the conversation flowing.
Likewise, when you sit down with your home loan specialist for the first time, it’s a good idea to know what you’re there to speak about. Surprisingly, a lot of people come totally unprepared. Awkward.
Ken Wilson, Home Loan Specialist at RAMS Sydney South East, says there are two types of people who come to him to speak about taking out a home loan: the ones who’ve done their homework and the ones who are clearly diving into the conversation with no background.
For Ken, the people in group A are vastly preferable to those in group B.
“If someone comes in with a list of questions and has done some homework, the home buying journey will generally flow more smoothly,” Ken says.
Clueless or researched – which kind of home loan customer are you? Picture: Kate Hunter
So how do you become one of these desirable home loan customers?
We asked Ken to break down the basics so you can come to your home loan discussion fully prepared.
Here’s an idea of the information you’ll be expected to provide – as well as the knowledge it’s useful to have – when you first go to meet with your home loan expert.
Situation
What is the current status of your property journey? Are you just window shopping or do you have a particular property in mind?
In order to gauge the urgency of your required service, the home loan specialist will need to know this information to better help you get to the next point. If you are thinking of making an offer on a specific property, bring those details to the discussion, including the property listing.
It is also vital to share whether or not you’re purchasing your first home. (If you’ve landed here, we’re guessing it’s your first time!)
How is a home loan approved?
Most lenders will focus the discussion on four important criteria – which it helps to know and understand before meeting with your home loan specialist. These are:
Borrowing capacity
Lenders will judge borrowing capacity on how much you earn and your costs of living. So be prepared to share information regarding your salary and lifestyle habits!
Ken says it’s easy to work this out as most lenders have online calculators that you can punch this information into to work out roughly how much they may allow you to borrow.
“The customers that come in organised have some idea about what they’re going to pay. Many lenders have online calculators that you can use – use one of these to find out how much you could potentially borrow and then you’ll at least know what ball park you’re in,” Ken says.
Understanding your borrowing capacity is key to getting you to the next stage in your hunt for ‘the one’ aka your dream home. Picture: Kate Hunter
Genuine savings
Are you contributing real savings to the transaction?
The lender will expect that you have something in the bank to prove that you’ve got a consistent pattern of saving – which will in turn put you in good stead to pay loan repayments. Most lenders will require savings of at least 5% of the total purchase price of the property.
“What lenders are not looking for is just a lump-sum deposit, but rather something that’s being regularly added to,” Ken says.
Loan amount – Loan to Value Ratio
The amount that the lender is prepared to lend you is expressed as a percentage of the value of the property being used as security for the loan (usually the property you are buying). This is called the Loan to Value Ratio or “LVR”. The value of the security property is determined by the lender’s valuer, and it may be different to the price you actually pay for the property.
For example, if your property is valued at $250,000 and you need to borrow $200,000, the LVR would be 80% (200000 / 250000 x 100 = 80).
When calculating your LVR, your lender will use the amount you need to borrow which will take into account costs associated with your purchase (including Lender’s Mortgage Insurance, which is explained in detail later along with other costs associated with purchasing a property) and your contribution to the purchase.
Other costs
The cost to purchase a property is more than the price you pay the owner for it, Ken explains.
The total price is calculated as:
- Stamp duty
- Conveyancing fees
- Application fee payable to the lender
- Any other government fees (which differ by state)
Stamp duty is a tax on a property transaction that is charged by each state and territory, and the amounts can and do vary. The stamp duty rate will depend on factors such as the value of the property, if it is your primary residence and your residency status.
You may also be eligible for stamp duty concessions, depending on a range of factors such as whether or not you’re a first home buyer, as well as if you’re purchasing a home off-the-plan or building a new home yourself.
Working out the amount of stamp duty you will have to pay is easy to calculate ahead of your discussion with your home loan specialist using an online stamp duty calculator.
Conveyancing fees for a property purchase will vary but the average is around $1,500, Ken says, and can cover a range of steps from reviewing the contract to preparing for settlement day.
On top of this you will be looking at fees for building and strata reports – around $350.
The cost of a property is not just the price advertised on the listing page. Picture: Kate Hunter
Another cost that may be involved in your property purchase is Lender’s Mortgage Insurance (LMI). To find out more about LMI and whether you are likely to incur this additional cost, speak to your home loan specialist.
Credit rating
The lender will examine your credit report when you apply for a loan.
Ken’s advice? “When looking for a suitable home loan, it is worth giving some thought to how many lenders you apply for a loan with. The more activity on your credit file, the lower your credit rating may be. If you’re going to shop around for a home loan, consider how many loan applications you wish to make. You can enquire with multiple lenders, but apply for one loan,” he says.
Family guarantee
Family guarantees (sometimes known as parental guarantees) can be useful when trying to buy your first home and could potentially help you avoid having to pay LMI. They work by allowing your parents to use the equity in their home to guarantee part of your loan.
Talk to your parents ahead of your meeting with your home loan specialist so that you know whether a family guarantee could be on the cards. And something for your parents to bear in mind in considering whether to provide a parental guarantee is that they would need to get their own legal advice about doing so.
Information in this material is general and does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. You should also obtain independent professional advice relevant to your financial circumstances. While such material is published with permission, RAMS is not responsible for its accuracy or completeness.
This article was originally published on
15 Jan 2018 at 9:00am
but has been regularly updated to keep the information current.