February 14, 2014
Buying your first home is an exciting time, but it can also be a daunting experience if you’re not prepared. That’s why it’s important to do your research, especially when it comes to applying for your first home loan. The following takes a look at what you need to know before applying for a loan, so that you can be better prepared and improve your chances of approval.
How much deposit do I need?
‘As a general rule, most lenders require a minimum 5% deposit of the purchase price’, Mortgage Choice broker David Sims advises. So if you are considering purchasing a property for $350,000, you will need a minimum deposit of $17,500. Ideally, if you are able to save a 20% deposit you will have a greater choice of lenders and avoid Lender’s Mortgage Insurance fees.
What is Lender’s Mortgage Insurance?
When you have a deposit that is less than 20% of the purchase price, Lender’s Mortgage Insurance (or LMI) will apply. This is because when you are borrowing above 80% of the purchase price, the bank will view this as being a higher risk to them. The bank takes out a Lender’s Mortgage Insurance premium to protect themselves in the event that you are unable to make repayments on your loan, and this premium is added to your total loan amount.
What is Genuine Savings?
Genuine savings (or your deposit funds), are savings that you have held in a bank account for at least three months. Most banks will require copies of your bank statements showing evidence of genuine savings during a three month period. Genuine savings criteria can vary from lender to lender, so it’s a good idea to speak with a mortgage broker about genuine savings requirements.
What about my employment history?
You should be able to demonstrate a stable employment history. Ideally, you should have been in your current role for at least 6 to 12 months. If you’ve just started a new job it’s preferable to have completed your probationary period before applying for a home loan.
What about my credit history?
It’s important that your credit file shows good conduct and is clear of any defaults that may negatively affect your application for credit. New laws coming into effect in March 2014 will allow additional account and payment history information to be recorded on your personal credit file, so make sure that you pay your bills on time!
If you’re thinking about applying for a home loan, it’s a good idea to check your credit history first. You can order your personal credit report through the following organisations:
Dunn & Bradstreet
What if I have other debts, will this affect my loan application?
You will need to disclose to the bank any personal debts you may have including credit cards, personal loans and car loans. If you have a high level of personal debt, this could affect your serviceability (your ability to repay the loan). Our mortgage brokers can look at your individual situation and make recommendations to reduce your level of personal debt if required.
Want to know more? Contact us on 9277 9888 to book a free consultation with your local mortgage broker David Sims.