Finance

Getting Your First Home Loan

Have you been renting out your friend’s place or sharing a flat all your life and just decided on getting your own place? Getting your own place to call your home can be a tedious process – identifying the right location, the right budget, the right type of accommodation which will meet your long term plans etc. However, over and above all these doubts you may have, getting a home loan is also very important! In this article, we shall address some of the key questions any person applying for a home loan might have and we are sure this will put you one step ahead of the rest.

To What Extent Do I Borrow?

This is one question every home loan borrower is bound to have. See, home loans are tailor made just like any other loans and it is sure not a one stop fit for all. It will be smart to speak to your financial consultant to sit down and do some number crunching and come up with the right answer for you. What we suggest is identify a figure which you can comfortably repay without hitting any roadblocks. Always borrow what you can repay! Lending agencies will assess your repaying capacity and your revenue stream before suggesting the right number to you. This number might also be based on an assumption of 2% increase in interest rates should home loan rates were to increase in the future. Based on these assumptions, your financial consultant should be able to arrive at a figure which will not put a dent in your plans.

Do I Need a Deposit?

Well, of course. If you are going to get a home loan, you will have to meet the rest of the payment in the form of a deposit. The required deposit will vary depending on a number of factors including the purchase value of the property and the borrower’s circumstances. Usually, it will be at least 20% deposit with costs of purchasing a property which should be enough for you to avoid Lenders Mortgage Insurance in Australia. Sometime’s if your parents will act as guarantors, you may not even have to pay any deposit at all! Did you go start knocking on your parent’s door for signing the guarantor’s form?

So what is this Lender’s Mortgage Insurance?

As a first timer into home loans, you may hear a lot of financial lingo being thrown around like it is the first vocabulary you came across in your life. Lenders Mortgage Insurance or LMI is just one of the many acronyms you will hear from your lender. Around 50 years ago, if you did not have a 20% deposit, the banks would not lend you any money to purchase a home, however, banks started seeing even though you cannot make the deposit, you are still able to make the repayment and thus they introduced the LMI. In a scenario where you get a house for $400,000 and you get a loan for $380,000, a year later your home is only worth $360,000 and you are unable to make the repayments and you end up selling your house. The lender is about to make up for the $20,000 loss from the mortgage insurer as the insurance protects the lender.

If you have more questions on getting your first loan, why don’t you walk into one of your nearest offices of Rapid Finance and talk to one of our consultants?

About the author

Oliver Revilo