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Buying your own home is perhaps one of the biggest financial decisions you'll ever make. While you may have enough money to buy a home outright, you will probably be like most people and will need to consider taking out a home loan. In so doing, you're committing to making repayments for many years. There are many different types of loans available, each offering loans for different periods, charging variable fees and offering a variety of interest rates and repayment options. Choosing a home loan that suits your needs takes time and involves shopping around. You also have to prove that you are a suitable borrower. Can you afford to buy a home now? The first thing to consider when you are considering buying a home is how you will be able to meet your home loan repayments. When you buy a home you suddenly face new expenses, like mortgage repayments, land rates, water rates, house and contents insurance, house repairs and for some people, strata levies. You will therefore probably have less income to meet unexpected expenses. It is important that you work out your budget to decide whether you can realistically afford to cover all the costs involved with buying a home in addition to your regular expenses. Use FIDO's comprehensive budget planner to help you work out how much money you've got coming in and what's going out. You'll be able to see other areas where you might be able to save money to cover your new housing costs.
Eligibility requirements
In order to qualify for a loan, you may be required to provide evidence of your income, your savings record and the amount of cash deposit you have available.
The amount of documentation expected will depend on the terms and conditions of the particular loan you are seeking. If for example, you take out a "low-doc" (low documentation) loan, you won't need to provide the lender or mortgage broker as many documents to prove your income, assets and liabilities.
Low-doc loans can often help if you would not normally qualify for a standard loan. There are however, some strings usually attached, like extra interest payments, so it's vital you understand what you're getting into. Read more about low-doc loans here.
Choosing a home loan
There are many places where you can go to arrange finance for a home loan including credit unions, building societies, banks, finance companies and mortgage brokers. Take the time to compare different home loans, as even a small difference in the interest rate can make a big difference to the amount you pay. For example, take two loans, one charging 6% in interest per year, and the other charging 0.5% more at 6.5%. The half a per cent (0.5%) difference on a $150,000 home loan over 25 years can cost you an extra $13,900 if a broker sells you the more expensive loan.
The CANNEX website - www.cannex.com.au - is an excellent place to go to compare different loans. Magazines and newspaper columns will also give you a good idea of current rates for various types of loans as well. Additionally, Fido has a separate Home loans section. Mortgage brokers
Mortgage brokers may be able help you find out about suitable loans and arrange special deals. However, as with any adviser, do some checking and shopping around yourself. Make sure your broker is finding a competitive loan package or you could end up paying more than you need to. Most brokers offer only a limited range of loans. They get paid a commission and some may receive other benefits from the lender as well. If you just use a broker, you may miss out on some of the cheapest loans in the market. More information and tips on dealing with mortgage brokers. |
