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Pre-approvals for home loans are an indication that a lender is likely to approve you for a home loan. Pre-approvals are letters provided to borrowers from lenders who intending to purchase a property.
Obtaining pre-approval involves a series of steps, subject to change dependent on personal circumstance;
1. We 1st would be understand your finance position and what is you would like to achieve.
2. We would then look to shop around the lenders to source the best deal for you based on your circumstances.
3. Once we have narrowed down the lenders, we would then collect a list supporting documentation from you.
4. We would then do a full review and complete the loan application with the lender
5. We would then submit this application to the lender and provide you update along the way.
6. The lender would then conduct a review on their end and if they are happy you can meet their requirements, they will issue you will a pre-approval.
1. It gives you an idea of how much you can borrow.
2. You will be able to attend auctions knowing what you can and can’t afford.
3. Vendors can favour buyers who are pre-approved and ready to purchase.
4. Pre-Approvals are typically valid for up to 3-6 months.
5. There is no cost to be pre-approved by your lender.
When you’re pre-approved you can start your property search knowing the bank is willing to lend you money.
Refinancing your home loan essentially means that you are moving your loan with your existing lender to a new lender.
Borrowers will refinance their loan for several reasons, including;
1. You want to access your equity to renovate or buy another property.
2. The interest rate you are paying is simply too high and you are looking for a better deal.
3. You’re looking for more flexible repayment options, such as making larger or extra repayments.
4. You’re struggling to make repayments or need extra cashflow.
5. Your current loan is outdated and there are better options out there.
1.There are costs involve to refinancing your home loan, it’s important to do a cost benefit analysis to make sure it's worthwhile.
2. If you are currently fixed in on your existing loan, then you may have to pay additional break fees.
A debt consolidation loan is designed to combine personal or unsecured debts into a lower-interest loan. This bundles your debt with your home loan to make one monthly repayment rather than having several. Generally home loans have much lower interest rates than unsecured debts, consolidating these loans could help reduce the amount of interest you pay.
The most common types of debt consolidated are;
1. Car loans.
2. Credit cards or store cards.
3. Personal loans.
To qualify for a debt consolidation loan, you will need to illustrate to the lender that you’re trustworthy and able to manage your finances. Below is a list of criteria the bank typically looks for;
1. A good credit score.
2. Evidence of regular home loan repayments on time for a specified number of months.
3. Have paid personal loans/credit cards on time for a specified number of months.
4. A history of stable employment.
5. Sufficient equity in your property.
Generally, a customer will apply for a construction loan if you were looking to build a new home, make some major structural changes to your existing home or you are purchasing a land and build. The most common type of construction loan is your land and build, this is where the land and construction fees are compiled into one loan. Depending on how your construction loan is set up, there will be varying conditions that need to be met throughout the construction of the home.
Rather that the lender providing you with the full loan amount once the loan is settled, construction loans are advanced in stages, called 'progress drawdowns'.
Generally, there are 6 stages to a build, these include;
1. Deposit stage.
2. Base stage.
3. Frame stage.
4. Enclosed/Lock up stage.
5. Fixing stage.
6. Practical Completion stage.
The money is advanced to your builder upon completion of each of the stage, while will need to be in-line with the builder’s contract. It's not uncommon for the bank to send a valuer out to inspect the work at each of the key stages.
As you’ll be given funds in instalments, most lenders will typically only require you to pay interest on the amount you have drawn. Therefore, you will be making interest only repayments throughout the build process. Once construction is complete and all progress draws have been made, you can then begin making full principal and interest repayments on the loan.
There is a lot to consider when looking to purchase an investment property. First things first, how are you going to fund your purchase? Do you have a deposit in the form of cash savings or are you going to rely on the equity you’ve built up in an existing property to make the purchase possible? This point alone can be a major factor when selecting a lender as they all have different requirements and expectations when making their decision.
Are you looking to purchase and existing property or will it be off-the-plan? Maybe you are looking for a land and build construction project to really maximise your long-term tax benefits?
Not all lenders are created equally, so depending on the type of investment you are looking to do, it will have a large bearing on the lender you choose.
We find that most of lenders out there are good when it comes to lending on an existing property, however only a handful are good in the construction lending space.
Knowing the lender’s products and policy is crucial to getting the best outcome for you.
Loan Structuring is one of the most importing factors when looking to purchase an investment property.
If the correct structure is not put in place on the first property it could prove costly to fix down the line.
Proper structuring of your loans will allow you to maximise your tax benefits or in some case even assist you in paying off other existing owner-occupied debt sooner.
Only when we fully understand your financial situation and personal goals can we tailor the correct structure for you.
If you are thinking of purchasing an investment property, please don’t hesitate to get in touch.
Our team will be able to guide you through the decision and project manage the whole process from start to finish. It’s what we do.
Negative gearing is related to investment lending and refer to when the investment income you earn is less than your investment expenses, as a result this creates a negative cash flow on your investment property. Given the customer is making loss from the negative cashflow, these losses can potentially be tax deductible depending on the customers circumstance.
Positive gearing is the inverse of negative gearing where in fact the customers income from the investment property is higher than the investment expenses, resulting in a positive cash flow.
A fixed rate home loan means that a specific interest rate is ‘fixed’ to a home loan for a set period of time. Should the cash rate fluctuate over the fixed term, the borrowers interest rate will not be affected. This means that their loan repayment amount will stay the same for each month over the fixed term period.
Fixed rates are generally set for a predetermined period which typically range from 1 to 5 years.
Once a customers fixed rate term expires, the loan will default to a variable rate unless the customer chooses to enter into another fixed rate period. Most lenders have alerts in place to advise customers of their options to renew their fixed term 4-6 weeks prior to the fixed term maturity.
The most common benefit to a fixing home loan is that it provides the customer with level of certainty of repayment, below is a list of other benefits;
1. Provides borrowers with stability and assurance.
2. You’ll pay the same amount each month over the fixed term.
3. Protected against rising interest rates during the fixed term.
4. Monthly budgeting is made easier.
Fixed rates can provide borrowers with financial certainty however there are some drawbacks to consider;
1. If interest rates drop you won’t benefit.
2. Lenders may charge for breaking or overpaying (partially breaking) your fixed term loan.
3. Fixed rate loans provide fewer features and flexibility than variable rate loans.
4. Most lenders do not allow 100% offset accounts.
5. Typically you cannot make unlimited extra repayments.
6. Many lenders do not offer a redraw or construction facility on fixed rate loans.
A home loan offset account can be viewed as a type of savings or transaction account that is directly linked to your home loan and is designed to help you reduce the interest charged on your home loan.
How does it work? The easiest way to understand how an offset account works is work through an example.
Let’s say you have a $600,000 loan and $100,000 in your offset account, you’ll only pay interest on your home loan based on a balance of $500,000 ($600,000 minus $100,000) for that day.
If you pay a bill for $3,000 from your offset account, then the balance would go to $97,000 ($100,000 - $3,000).
In turn for that day, you will now pay interest on you home loan for $503,000 ($600,000 - $97,000).
In this example the savings difference might not seem much however over years this can add up to be a significant amount of savings, thus potentially reducing the term of your home loan.
A low documentation ‘low doc’ loan is designed for borrowers who are unable to provide the typical normal paperwork required for a standard home loan such as lodged tax returns or financial statements. As such a low doc loan includes an element of self-verification and typically require the customer accountant to sign off on the stated income. With this in mind, it is one of the more uncommon types of loans.
Loan to Value Ratio, also known as LVR, looks at the portion of the loan that is secured against the value of the property.
The best way to explain it is in an example. Let’s say you are buying a property worth $1,000,000 and you are going for a loan of $800,000 then your loan to value will be 80% (i.e.: you loan is 80% of the property value)
Loan to Value Ratio (LVR) formula: (Loan amount / Value of property) x 100 = LVR
LVR is a key metric for all lenders and can result in the rate you’ll qualify for as well as the amount a lender is willing to lend you. If you look at it simply, borrowers with a lower LVR are viewed as lower risk by lenders.
When considering a home loan application, a borrowers LVR is one of the items lenders assess.
Lenders evaluate LVR before approving a home loan in order to determine the amount of risk involved.
If your LVR is high (greater than 80%), the loan may be considered higher risk. Generally, the lower your LVR, the more equity you hold in the property and the better your likelihood of being offered a lower interest rate. If your deposit is less than 20% of the assessed value of the property, your LVR will be greater than 80%, and your lender may require you to pay Lenders Mortgage Insurance (LMI) in order to have your loan approved.
Lenders Mortgage Insurance (LMI) is a fee charged by home loan lenders. It is typically required by a lender if the borrower is considered a risk, usually if they are borrowing more than 80% of the property purchase price. However, there are home loans available to individuals borrowing up to 85% of their property purchase price that come with no LMI fee.
It’s important to remember that LMI is designed to protect the lender, and not the borrower, in the event that the borrower defaults and is unable to meet their loan repayment obligations.
When is LMI paid?
LMI can be paid in the form of a one-off, generally non-refundable payment usually made at the time of loan settlement. However, most lenders will add it to the total loan amount so it can be paid off on top of the borrowers monthly loan repayment.
How is LMI calculated?
How much LMI you’ll be required to pay will depend on the size of your loan and the size of your deposit. LMI is calculated as a percentage of the amount borrowed. This means that the fee the borrower pays increases as the Loan to Value Ratio (LVR) and loan amount increases.This fee varies slightly from lender to lender and depends on a number of variables including if the property is a new purchase or investment, if the property will be owner occupied, and where the property is located since stamp duty is payable on LMI.
How can I avoid paying LMI?
There are a few ways you can avoid paying Lenders Mortgage Insurance.
1. Check to see if your profession is viewed as low risk (Doctor, Accountant, etc.)
2. Grow your deposit (easier said than done).
3. Financial gifts.
4. Shop around with different lenders.
5. Use a guarantor.