Are you wondering what property development companies and lenders need to see before you can sign on the dotted line? We’ve got you covered.
After shopping around property developments for months, you’ve found your dream apartment. But now here comes the tricky part—finding the right mortgage for you. When you need a guide to buying your first home, this is one of the first steps you’ll take.
To get the best value home loan for your future property, you’ll need to consider a few questions, especially those surrounding the deposit you are willing to pay.
We’re going back to basics to share everything you need to know before you set foot in that door, to make sure it’s the best loan for you.
What Is a Mortgage?
Before we start on what the steps to getting a mortgage actually involve, it’s best to think about what a mortgage actually is. As soon as you sign the papers to borrow money for the purpose of buying property—whether that’s from a bank or a credit provider—you’ve entered into a mortgage.
This is an agreement to borrow money from the lender with interest, to be repaid over a certain timeframe. This can be as long as 30 years, or less depending on the repayments you can afford.
As the borrower of the money, you are the mortgagor, and the lender—most likely your bank—is the mortgagee. At any time in the future you wish to sell, you must have your mortgagee’s consent.
What Will I Have To Pay?
The best way to learn what you might expect to pay for a mortgage is to shop around, just as you have when looking at property developments.
When assessing your deposit savings, keep in mind that many property development companies offer incentives to buy and staged-deposit arrangements. If you’re committed to buying an apartment, get in touch with the respective sales agent to see what options are available.
For first home buyers, it can be difficult to get a feel of what to expect. However, using tools such as the Canstar mortgage comparison feature can give you a great range of options to compare.
The Australian Securities & Investments Commission also provides a mortgage repayment calculator, which you can use to see which mortgages are most manageable long-term.
Keep in mind that in addition to your deposit budget, it’s advisable to retain a separate emergency fund. This way, once you have your mortgage and start repayments, you will have a buffer in case you lose your job or unexpected living costs arise.
Although Australians have enjoyed low interest rates over the past few years, keep in mind that they can increase consistently over long periods. This will impact your repayments, so it’s worth testing what kind interest rate could put you under mortgage stress for the amount of money you borrow.
When you borrow money, from the lender’s perspective there is always some risk you won’t be able to pay it back. If you’ve struggled to pay back debts in the past, you may have a poor credit rating. Lenders will check your credit history and rating when you apply for a mortgage, so it’s important you understand what information they will see.
To check your own credit rating, you can do so for free once a year, or under specific circumstances. There are several ways to do so, and the Australian Government outlines the process to access your credit report.
Once you have applied, you should receive the report within 10 days.
Lenders Mortgage Insurance
As mentioned, lenders are concerned with mortgagors who pose a higher risk to them. If the size of the deposit you need is greater than the amount you already have saved, a lender may still allow you to borrow from them.
To do so, you will need to purchase lenders mortgage insurance. Often, your deposit must be at least 20% of the total purchase price, so it’s important to think about whether taking on this additional fee is worth it.
If you are in a position where you could make the 20% deposit within a few months, it may be better to continue saving to avoid the additional cost.
As apartments in property developments are often cheaper than detached houses in suburban Sydney, you’ll likely have a lower deposit required. The main thing is to understand the scope of your budget and how this will impact your mortgage.
Income Protection Insurance
Although not essential, it’s worth considering if income protection insurance is right for you. This will mean your income will be protected if you lose your job, or become ill and can no longer work.
It’s important to keep in mind that although your lender may offer it, you have no obligation to take it out with them. As a separate product, you are entitled to shop around as you would do with your mortgage.
Applying For Pre-Approval
Once you’ve found your dream home, things can move very quickly. The auction may only be a week away, or you may want to arrange a time to meet with the property developers to make your offer.
If you wait until the last minute to learn about your finances, you risk letting your dream apartment slip away. As property development companies are used to the high level of interest in their apartments, they may expect some form assurance to even begin talking about buying arrangements.
To prepare for this, being pre-approved for a mortgage is essential.
This is where a lender takes a look at your situation before you’re actually ready to purchase a specific property. They will review everything they normally would for a mortgage and conditional pre-approval will be offered if successful.
This assessment if valid for up to six months, without obligation to you or your lender. With this in hand, property developers will know you’re serious and in a position to buy with them, ensuring the process runs much more smoothly.
While you wait for pre-approval, start attending property developers’ inspections to get a feel of what you’re looking for in your apartment.
Of course, your loan is conditional to a final check once you have put in your offer on a particular property, to make sure everything is in order.
What You’ll Need
- Proof of income, employment and savings
The longer you can prove that you’ve been in a stable job, the better. Although a recent job change will not disqualify you, it might be hard to insist you’re a low-risk mortgagor if you’ve had five jobs in as many years.
- Evidence of net worth and existing debts
Tally up all your assets and minus your debts to determine your net worth, and bring along paperwork of any existing debts like car loans, HECS, or any personal loans.
- Proof of identify
- A good credit score
As mentioned earlier, you can check your own score for free before you meet with lenders so there are no surprises.
Come armed with all of these documents and you’ll be in the best position to walk away with pre-approval. Once you’ reached this stage, you’ll be on your way to negotiate with property developers to secure your first home.