Check out some of the most commonly asked questions that I get - and their answers.
Here are my top most frequently asked questions.
Q. How does my credit score affect my borrowing capacity?
A. Your credit score represents to lenders how likely you are to repay your debt. Therefore, maintaining a good credit score is important, as it is a key factor for a lender when you apply for a loan.
Your credit score can also affect the amount the lender will allow you to borrow, as well as the interest rate they are prepared to offer you.
You can obtain one free credit report for yourself per year through websites such as Equifax, Finder and GetCreditScore.
Please see the below guide for credit score rankings (guide only):
Excellent: 833 - 1,200
Very good: 726 - 832
Good: 622 - 725
Average: 510 - 621
Weak: 0 - 509
Ideally, you would like your credit score to be as close to 1000 as possible.
Some things that you can do to improve your credit score include lowering your credit card limits, paying your existing debt repayments (including bills and rent) in full and on time, pay off any debts in full where possible and limit your credit enquiries (eg. many loan pre-approvals can lower your overall credit score).
Q. What is stamp duty and how do I pay it?
A. Stamp duty or transfer duty as it's sometimes known, is a tax charged for property purchases by each Australian state and territory. Costs can vary state to state. Your conveyancer or solicitor will arrange to pay stamp duty on your behalf to the relevant state or territory revenue body.
You can calculate stamp duty via this link.
You can read about stamp duty waivers or discounts here.
You may heard have about the changes to the NSW property tax system, which will give first home buyers the choice between paying an annual property tax or stamp duty. Want to know more? Ask us!
Alternatively, you can find some information on the First Home Buyer Choice proposed scheme here.
Q: My lender requires me to insure my building - what figure shall I insure for?
A: Yes, a lender can require any structure built on your block of land to be insured against loss. The insurance will ensure that a similar structure can be rebuilt should a catastrophic event occur. Strata titled properties have their insurance provided in their strata levies - you can contact your strata manager for a copy of this. Otherwise you will need to insure for either full replacement cost as determined by the lender's valuer or an amount that you are comfortable with. If you need help with calculating a replacement amount try this great calculator.
Q. With sky-rocketing property prices, how can I afford to live in my favourite area?
A. As many of us know, buying where you can afford does not always equate to buying in an area you love. Even the worst house on the best street can be way out of budget these days. So, how can you enter the property market to become a homeowner AND live where you really want to live? It’s simple really: rent where you love while investing where you can afford. This term is sometimes known as “Rentvesting”.
Though often overlooked as an option, no rule says you need to own your principal place of residence to invest in property. In fact, it’s a really effective double play with many financial benefits of property ownership without sacrificing your lifestyle. Want to know more about these benefits? Ask us!
Q: I only have 5% saved, how do I pay the 10% upon contract exchange?
A: The best way is to negotiate a 5% exchange deposit. If that proves to not be possible you can purchase a deposit bond which will act instead of the 10% cash. Our process for obtaining a bond is very simple and you can read more about deposit bonds here.
Q: How much can I borrow?
A: It sounds like an easy question to answer, right? In reality it depends on a great many variables ; Income (obviously!) and how much you have saved are the two key headline numbers. However, there are many other factors that may limit or cap how much you can borrow, such as the type of property you are looking at (studio apartments have limitations, for example) or the postcode that you are considering buying into (some lenders limit loan sizes in certain areas).
The best answer is to book an appointment and allow us to get all the information that we need to give you the very best advice on not only “how much can I borrow” but also “how to best to structure a loan” for maximum benefit to you.
Q: What is "rate lock"?
A: If you are applying for a fixed interest rate loan, many lenders allow you lock in the rate advertised on the day rather than accept the rate offered on settlement day (which is the default). The cost for this varies from lender to lender - from $0 to 0.15% of the loan amount. Rate lock is always a consideration but especially in an environment of increasing interest rates.
Q: How long would my pre-approval be valid for?
A: Once we have your pre-approval, it will be valid for 90 days with most lenders. There are a few exceptions to this, with some lenders offering longer periods of time before expiration, however 90 days is the gold standard.
Q: What is LMI?
A: LMI or Lenders Mortgage Insurance, is a way to obtain a home loan, without having saved the commonly required 20% deposit beforehand. What this means is lenders are able to pass on the risk to a mortgage insurer, which enables the lender to offer a higher loan amount but with less of a deposit, sometimes as low as 5%. The cost of LMI essentially is added to your required loan amount, and paid off over time.
In some circumstances the LMI can be waived, such as under the First Home Guarantee or for certain professions, so make sure that you ask about these.
Q. Do I need a solicitor or conveyancer?
A: The short answer is - yes. A solicitor/conveyancer has a number of roles to play in the buying process.
You should contact a solicitor early in the process, when you have received a pre-approval for a home loan from a lending institution.
When you find a property, your solicitor will help you check the Contract of Sale. They will then do a title search on the land and property and a local government search. It is their job to alert you to anything in these searches, that may affect your decision to purchase the property.
After a contract has been signed, the settlement period begins. During this period, a number of key events will occur that are driven by your solicitor. These include preparing the Transfer of Land document, arranging a settlement date and advising you on the amount of funds you are required to provide at settlement.
Servicing the Inner West suburbs of: Annandale, Drummoyne, Forest Lodge, Glebe, Balmain, Balmain East, Rozelle, Leichhardt, Lilyfield, Birchgrove, and Summer Hill.
