How do I manage my mortgage successfully?

Mar 232011
 

How do I manage my mortgage successfully?

At the moment you are probably so focused on finding the right property and the best loan to get your dream of being a first home owner off the ground. However it also pays to consider what’s going to happen after settlement, after your deposit has been paid, after your loan has been activated and after all the boxes have been unpacked.

To make sure you are able to manage your mortgage repayments as successfully as you will now be able to manage your loan application and first home buying experience consider the following tips:

Don’t forget about your budget. Your budget is more important than ever when you start to repay your first home loan, and the first year can give you a good indication of how you are going to manage the rest of the loan period. Therefore make sure you keep your budget detailed and up to date so that you know how much you are spending on your other expenses, where all of your income is going and whether there are any places you can cut back on luxuries, to divert more funds into your home loan.

Make your repayments weekly or fortnightly if you can afford it. If you are able to pay your mortgage fortnightly for example you will actually be making the equivalent of 13 monthly repayments each year, but if you had kept to a monthly schedule you would of course only have paid 12 monthly repayments. This little bit extra can save you thousands each year in interest and can help you repay your loan faster saving you time as well as money.

Make extra repayments where you can. Any extra repayments you make towards your first home loan on top of your minimum amount will go directly towards repaying the principal balance. If you look at the breakdown of your monthly repayments you will see that only a very small amount goes towards repaying the loan amount, and the rest goes towards interest charges. So the way to really get ahead as a first home buyer is to pay more than the minimum.

Make extra repayments in the beginning, the very beginning. When you first start repaying your home loan you will be paying mostly interest and this is when you need to be concentrating on making extra repayments to reduce your principal amount. Also in the very beginning at loan settlement you are not required to make a monthly repayment on the settlement date. However if you do, making this one extra payment can save you almost 5 months on a $300,000 home loan, and that equates to over $6000 you will have saved in interest.

Make sustainable changes to your lifestyle. When you move into your first home you are entering into a very different stage in your life, so consider whether it is time to make other changes which will also save you money. For example can you start taking a lunch to work instead of buying it everyday — you may have even just bought a brand-new home with a gourmet kitchen, so why not make the most of it by cooking more meals at home? Just remember that as you find places in your budget to cut back so you can funnel more funds into your home loan that if you cut back too far you can find yourself yearning for these luxuries you have replaced with loan repayments. Therefore strike a comfortable balance between frugality and frivolity so you can enjoy your new life as a first homeowner while cleverly saving money on interest charges too.

As you try and absorb, remember, and apply all of the new information you’ve just learnt about how to be a successful first home buyer always keep in mind that nothing is impossible if you set your mind to it, and owning the first home of your dreams should never be out of the question. If you arm yourself with the right tools, tips and advice you will be able to recognise the perfect first home when you see it because it will be a balance between independence and affordability, a new life and an investment in your future; you will then be able to negotiate the deal like a pro because you’ll know you have the backing of the best first homebuyer home loan behind you too, because you will have chosen the loan which suits your needs now and can grow with you as you learn to adapt and apply all of the best strategies to manage your first home loan.

How do I successfully complete the sale of my first home?

Mar 232011
 

How do I successfully complete the sale of my first home?

It can be all very well to read about the application processes and the fees involved in buying your first home, what about when it comes time to actually make the bid and process the sale? Don’t worry because we can walk you through that too, as successfully buying your first home can be as easy as:

Making an offer. When you find and have fully inspected a home which suits all of your requirements for your first home you are free to put in an offer to the seller and you are not obligated to that price until you have signed a contract. Consider whether your offer is reasonable with regards to the surrounding areas and asking prices so that you are taken seriously, but at the same time feel free to offer less than the asking price because you may be able to get a better deal if there are not a lot of other people making offers.

You can choose to buy at auction or a traditional sale. Property which is for sale through a real estate agent often has a fixed price, whereas if you go to an auction you can make a bid or two or three, which you feel you can afford and which you think is a good price for the property on offer. When you are making a bid at an auction, keep in mind that if you are the highest bidder you are legally required to make a purchase. If you make an offer on a private sale, you are not bound to the property until you sign a contract.

Know your cooling off periods. If you buy at a traditional private sale you will have a cooling off period after you sign the contract, which can vary from state to state for example in New South Wales you will have five days in Victoria you will have three days but in Western Australia you will have no days. Also if you buy at auction there is no chance to change your mind as the sale is final once you have bid and been named the highest bidder.

Get organised during the settlement period. The settlement period is the time which you and the seller agree to, to give you both time to organise and finalise finance, property inspections, and moving trucks. When the settlement day arrives your solicitor or conveyancer will organise payment of the final amount and check that no damage has been done since you signed the contract.

Organising insurance on your new home. This may be a requirement of your home loan, and even if it is not, it’s a good idea to organise insurance on the property you have bought as soon as possible after you have signed a contract. Seeking insurance on your first home can be very different to just organising renters insurance, and you will need to check for features such as mortgage discharge coverage where your insurance will pay for any mortgage discharge costs if your home is a total write-off.

Is there a checklist I should follow when I’m applying for my first loan so I can avoid rejection?

Mar 232011
 

Is there a checklist I should follow when I’m applying for my first loan so I can avoid rejection?

Choose a mortgage broker who can help you determine how much you can afford to borrow and which loan is best for you.

Alternatively fill out an application form online or by phone directly with your chosen provider and they will run a credit check on you and grant you conditional approval usually within two business days.

Some lenders will class their conditional approval as official preapproval on your loan, this is something you should confirm.

When it comes time to apply for a loan you will need to provide proof of income, this is usually details of your monthly salary both gross and net, and three recent payslips. You will also need to provide your employer’s contact details, and make sure that you inform your employer that they may be contacted by your bank. Also include details of your previous job if you have been in your current position for less than three years.

If you are self-employed you will need to also provide income figures from your last two years tax returns, unless you choose a low doc loan.

You will need to provide your personal details including a tax file number and your driver’s licence. Also take the time to make sure that your details are correct and consistent across all of your identification documents, because if your name has been spelt one way on your driver’s licence and another way on your birth certificate, you may need to get a statutory declaration to explain the inconsistency.

You may need to provide your bank account details to show evidence of savings.

Put together a list of your assets and liabilities, plus proof of these values if required. Your assets can include your furniture and electronics, jewellery, your cars, insurance policies, savings and investments.

Consider how your credit cards and credit limits will look. You may think that you are doing a good thing by repaying down your credit card balances. However if you have a low credit card balance but a higher credit limit the bank will see that as more spending room and more opportunity to get into bad debt. Therefore consider reducing the number of credit cards you have and reducing the limits on those cards.

Always be honest and upfront with all information. If you think you have a black mark on your credit history which you neglect to mention in your application it can cause more problems by providing false information on your home loan application, than if you had been honest about any potential issues upfront. Most mortgage brokers will be able to find a way around a bad credit history or any perceived problem.

What other lender costs might I have to pay?

Mar 232011
 

What other lender costs might I have to pay?

A loan application fee. Before the application has even begun it is likely you will have to pay a loan application fee which can be around $600. It can also be worth finding out whether this fee is refundable if you don’t go ahead with settlement of the loan.

Bank legal fees. These may be charged to you for the time spent by your lender’s solicitor on title search and preparing loan documentation. Not all lenders will charge this fee but be prepared for up to $300 worth of bank legal fees.

Settlement fees or a bank cheque fee. When the purchase is actually processed you will be able to pay settlement fees using a bank cheque from your loan amount. A bank cheque can cost around $15 each.

If you don’t proceed with the loan. You may be charged a fee for not proceeding with your loan application especially if the valuation has already taken place. You may also be charge additional fees if loan contracts have already been drawn up.

Ongoing monthly or annual fees. Depending on the loan you choose you may have maintenance costs to pay over the life of your loan.

Additional repayment fees during the term of your loan. If you happen to have extra funds and want to make an additional repayment be sure to check whether your loan charges you an additional fee to make extra repayments into your loan.

Redraw fees. If you choose to withdraw those additional repayments at a later date you may also be charged redraw fees. Some lenders will include a certain number of fee free transactions before charging you.

Early repayment fees. These may also be called early exit fees or deferred establishment fees and can be charged if you repay your loan in full within five years and discharge the security.

Variation or breakout costs. If you have chosen a fixed rate loan and decide you want to break out of the loan before the end of the fixed period you can be charged a fee usually a percentage of the amount still owing on the loan.

What other property costs might I have to pay?

Mar 232011
 

What other property costs might I have to pay?

Registration fees for a property purchase. A document called a Transfer of Land is lodged each time a property changes hands to record the change of ownership. The document must be registered with your State titles office and the cost of registration can vary between the states.

A title search fee. A search of the title for the property will need to be conducted to check that the details on the certificate of title are correct and there are no restrictions or encumbrances on the property which can affect the sale.

Land survey costs. A survey of the property will confirm the boundaries and show you whether there are any easements you need to be aware of. A survey will also check that the house has been built within the requirements of the Council.

Conveyancer fees. Conveyancers can lodge your Transfer of Land registration, conduct a title search and organise a land survey as well as help you understand all of the contracts and obligations you need to adhere to during the sale of the property. Expect to pay around $1000 for a conveyancer, but you are paying for someone to act as your legal representative, check whether there are rates outstanding from the council, confirm that the contracts meet your needs as well as liaising with your lender.

Body corporate fees. If your first home is a strata title property for example you will need to budget for ongoing costs such as body corporate fees, sinking funds and liability insurance which will cover any damage to the building and common grounds.

Building insurance costs. In most cases you will need your first home to be insured at the time of settlement, for your loan to be made available but you may want to ensure the property earlier when you exchange contracts for the purchase.

Building inspection costs. Before you go ahead with buying your first home you want to make sure there are no issues and so you should have building and pest inspections completed. Building inspections can check for damp, structural issues, damage and the condition of the foundation and supporting beams, columns and walls. You can also check whether there has been or is any pest activity before you buy.

Do I want to be able to make additional payments?

Mar 232011
 

Do I want to be able to make additional payments?

Every extra dollar put into your loan saves you time and interest. If you come into cash when you get a bonus at work or a raise, or you just have funds left over at the end of the month, you want to be able to direct those to your home loan because any additional funds you add will go directly to paying off your principal amount so you can repay your loan sooner and save on interest charges.

Some lenders will charge you to make additional repayments. This can negate the benefits of making additional payments because you are charged for doing so. However if you think you are likely to have extra funds available which you can channel into your loan this is a feature you should consider. You may also want to make sure that you can access those additional repayments with a redraw facility.

How do I choose between a fixed or variable interest rate?

Mar 232011
 

How do I choose between a fixed or variable interest rate?

A fixed interest rate loan may be for you if you like a set budget. With a fixed home loan you can choose a period of time usually from one year to 10 years for which your home loan interest rate will be fixed. With a fixed interest rate you will also enjoy fixed repayments so you will always know exactly how much is due each month to make it easier to budget. Having a fixed rate and fixed repayments may suit you if you are on a tight budget and want to know upfront how much you will be paying each month into the future, or you may just be the kind of person who likes a bit of certainty in their life.

A fixed interest rate home loan does not lend you as much flexibility. Often you are unable to make additional repayments to a fixed rate home loan if you come across extra cash which you would like to apply to your loan. Also if you have to break the loan and in turn the fixed term if you decide to sell your home and refinance your loan with another lender you may have to pay exit fees.

A variable rate loan allows you flexibility. A variable interest rate will usually be lower than a fixed interest rate and so your repayments are likely to be slightly lower too. However if there is an interest rate change your repayments are likely to fluctuate with these movements. You will also be able to make additional repayments to pay off your loan faster, and a variable interest rate home loan can be easier to refinance.

A variable interest rate home loan may require more careful budgeting. While interest rates may be lower at the moment you should not assume that they will be this low forever. Therefore if you choose a variable-rate home loan you will need to consider whether your budget can handle interest rate rises, and it can often be a good idea to pay more each month so that you get used to making a higher repayment if rates do go up.

What types of home loans do I have to choose from?

Mar 232011
 

What types of home loans do I have to choose from?

A split rate loan. Choosing a split rate home loan allows you to choose a part of your loan which will attract a variable interest rate and a part which will be charged a fixed interest rate. This allows you to take advantage of flexibility if rates drop, but also gives you a feeling of certainty knowing that part of your loan is fixed if rates do rise.

Honeymoon home loan. While this home loan may not take you to a beautiful tropical island and serve you cocktails by the pool, it can give you something just as good if you are a first-time buyer because you can enjoy an introductory variable interest rate period or discounted interest rate period where your normal interest rate is reduced by around 1% for up to a year, to help ease into your mortgage commitments.

A low doc home loan. This type of first home buyer loan requires little documentation as the name suggests. You need very little proof of income to get approval on your loan which can suit first home buyers who are self-employed or don’t have recent tax returns available. A low doc loan will also usually only allow you to borrow up to 80% of the property value, also keep in mind that where a 20% deposit would normally free you from the need to pay lenders mortgage insurance, LMI may be required on a low doc loan.

Line of credit home loan. A line of credit home loan is secured as part of your mortgage and acts similarly to a credit card where you can withdraw funds up to a set limit at any time based on the value of your property. You can use these funds for anything you want and you can spend the money you withdraw on home renovations, to invest in shares, to cover the bills in a tight month or to get away on holiday. With a line of credit home loan you have easy access to credit at rates which are usually much lower than a standard credit card. You do need to make sure that you remain disciplined in using your line of credit home loan and that you can stay within your budget and financial limits.

No deposit home loan. While no deposit home loans can be harder to find they are still out there but you are likely to find a no deposit home loan has a higher interest rate, and requires more application documentation. Borrowing 100% of the purchase price of your first home doesn’t negate the need for funds of your own because you will still have to cover stamp duty fees, legal fees and any loan application fees.

Just a basic home loan. If you’re wondering what you would ever want or need with any of these types of home loans, then you may be best suited to a basic home loan. A basic home loan won’t come with any of the features you don’t want or need, which also means the annual fees and loan application fees are likely to be lower, and so too will you interest rate. You are not usually able to make additional repayments but you are trading your flexibility for more affordable loan.

What is the best home loan for a first home buyer?

Mar 232011
 

What is the best home loan for a first home buyer?

There is not one type of home loan which is best for first home buyers, the best home loan for you is the one which is affordable, has the features you need, is easy to use and is best suited to the type of buyer you are and the type of property you are buying. So instead of looking for the home loan which is touted as the one which is best for first home buyers, learn how to choose and compare different types of first home buyer loans, and how to make one of the biggest decisions when it comes to your home loan about whether to choose a fixed or variable interest rate.

Contact a mortgage advisor from Home Loan Finder to find out about the best first home buyer loans on the current market

How do I choose the best home loan as a first home buyer?

Consider a loan which allows you to make extra repayments easily. As a first home buyer now is the time when you will I likely to have the most opportunity to make additional repayments to your home loan. Therefore make sure you choose a loan which does not penalise you for making additional repayments, and makes it easy to make those repayments via direct debit, ATMs or using Internet and phone banking.

Choose a loan with affordable fees. As you have now learnt, you have enough other fees and charges to worry about when it comes to your home loan without worrying about application fees, annual fees or monthly fees. It is possible to find a first home buyer loan with affordable low fees, and many providers are willing to negotiate fee waivers when it comes to application time so it never hurts to ask.

Does your loan meet your long-term needs, and will it be easy to adjust. It is hard to imagine where you will be in five or 10 years, let alone in 30 years but it does pay to take the time to consider your future and how your home loan will fit into that future. If you think that you will prefer more flexibility down the track look for a home loan which is easy to restructure, one which offers you the opportunity of fixed or variable rates, or both, and the opportunity to pause repayments when you start a family for example

Choose a loan you can afford if rates go up or your income goes down. While interest rates are still quite low they are on the rise so as you are choosing the best home loan for you consider how you will be able to afford the repayments as interest rates go up. Also think about how you would meet your repayments if you lost your job, got sick or saw a reduced income for any reason.

Always read the fine print. It’s an oldie but a goodie and it can be the point which points out a deal breaker on a first home buyer loan you were considering. Therefore make sure you always take the time to read and understand the fine print on your home loan features and contract.

How do I go about buying a property with a family member or friend?

Mar 232011
 

How do I go about buying a property with a family member or friend?

You will only be getting one first home owners grant. Even if both of you are eligible to receive the first home owners grant of $7000, as you are making a joint home loan application you will only be entitled to one grant amount.

Keep the relationship equal. An important factor in the success of co-borrowing is to maintain an equal and strong relationship with your fellow borrower. Therefore make sure each of you is responsible for an equal 50-50 share in the property and that you have a legally binding contract.

Consider a co-ownership agreement. A co-ownership agreement can cover things such as maintenance, payment for any damages and each person’s capital gains liability. It will also include details of what is to happen if one person defaults on their loan payment; typically if one person defaults the other person can be liable for all of the repayments and you may want to be able to take power of attorney in this case so you can refinance or sell, or you may want to make sure you are not held responsible by the lender for the repayments if your co-borrower has lost their job or become unable to work. A co-ownership agreement can also cover you in the event that the relationship between you and your co-borrower breaks down because details of such a situation will be in your agreement and can save you on costly litigation.

A co-ownership agreement will need to be obtained from your solicitor. A co-ownership agreement is not a standard part of a home loan contract and will need to be organised in addition to your home loan application.

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