If you’re interested in becoming a first home buyer, it’s definitely handy to know the appropriate terminology before you embark on your journey. You will feel a lot more comfortable with the process if you know what everything means as you correspond with your broker and learn about the process of things. This article aims to brief you on the basics of the property jargon you will experience as you travel through the process of securing your home loan.
When you apply, it’s crucial you know how much money you can contribute to your mortgage each month, while still comfortably sustaining your lifestyle.
Your broker can help you to calculate exactly how much you will afford to contribute, and by doing this can give you an estimate of what you will be able to borrow from a lender.
Home Loan pre-approval – this is worked out by your broker, and is how much you will be able to borrow from a lender, and how much you can spend on a property. This helps you to narrow your search for property to those that are within your budget.
TIP: Pre-approval generally lasts for 3 months so you can search for your new home with a feeling of financial surety, knowing your available limit, and with the ability to make an offer on property that is within your pre-approved price range.
Home Loan formal approval – once you have made a successful offer for a property you will need your broker to assist you to get formal approval. You will need to sit down with your broker and speak about what type of home loan you would like.
You will need to identify what your needs are when thinking about what sort of home loan is right for you. Ask yourself what you want in terms of repayments – are you happy to ride the current low interest rate trend and see what happens naturally, or are you after stability in your repayments? There are literally hundreds of products on the market, so make sure you are choosing a product that is perfect for your needs.
A fixed rate mortgage will provide you with consistency in your monthly home loan repayments across its lifetime. The interest rate will not change, and you will have a product that is stable and consistent throughout its fixed rate period.
A variable rate mortgage will fluctuate in accordance with the changes in the financial marketplace. The interest rates of your mortgage will move up and down in accordance with interest rate changes in the economy.
After you have decided whether to choose fixed or variable rates, there are several mortgage features you can choose.
Offset account – this is one of the most common home loan features available. An offset account is a separate account linked to your mortgage which can help you to pay off your mortgage faster. Any money in the account is used to offset the interest charged on your mortgage.
Once you have found the mortgage that best suits your financial situation, your broker will start the process of formal approval. This requires the chosen lender to assess your complete list of debts and assets. They will also look at your ability to afford the loan, looking at your income and living expenses to ensure you can comfortably make your repayments.
Property valuation – the lender will order a valuation of the property, to see how much it’s worth, and how much they are willing to lend you. If the amount you require is more than 80% of the entire value, they will need you to implement Lenders Mortgage Insurance (LMI)
Lenders Mortgage Insurance (LMI) – is insurance that protects the lender in the event that you the borrower default on your mortgage.
Once this is all in place and the loan has been formally approved, it will proceed to settlement, which is the day you officially gain ownership of the property and can pick up the keys!
While the overall process to acquire a home loan for your property purchase seems stressful and time consuming, our role as mortgage brokers is to alleviate the stress you may feel, and to find you the best home loan product for your needs.
Contact us to organise a free consultation, and find out how we can help you to purchase your first home!