How will I be assessed by a home loan lender?

Mar 232011
 

How will I be assessed by a home loan lender?

Your income. A lender will consider your gross annual income which is the total of your entire earnings for a whole year, before tax. A lender will also consider the type of income you are earning, for example full-time or casual.

Any other income. This could be rent you receive from other investment properties or family assistance from the government for example. A lender will also consider income from other investments and will often require two years proof of this income, showing actual dividend amounts, not growth in the value of the investment.

Your expenses. This information will cover the number of applicants and dependent children, as well as credit card limits, and the balances you have on existing investment properties or personal or car loans, and the lender may also consider your HECS debt. This gives the bank a good idea of how much money you have left over from your income after you have paid all of your bills.

If you can comfortably repay your loan. When the lender has all of the information about your income and expenses, they can see how much uncommitted income you have to dedicate to your home loan. Most lenders will consider that 30 to 40% of your gross salary is a comfortable amount to commit to your home loans, and this takes into account costs such as repairs, council rates, insurance and strata fees not just your repayments.

Your savings. Being able to show a good saving history will make you a more attractive loan candidate but it is possible to get a loan without a long savings history. Your savings become important, when you need to show you have enough funds for your loan deposit and having 5% of the cost of the property as your deposit will give you a wider range of home loan choices.

Your stress rate. Interest rates are not static, even if you choose a fixed home loan your rate is not fixed for the entire term. Therefore lenders will take into account current interest rates, and a high stress rate which takes into account future rate rises to make sure you can afford your repayments now and into the future. Most lenders will use a stress rate of around 2% more than the current official rate when deciding how much you can afford to borrow.

Your credit history. Every lender will check your credit report before approving your home loan application, as this will give them information about your current credit card debts and your past repayment history on personal loans, bills and credit cards. If you have a chequered credit history it is not impossible to get a home loan, you may simply need more savings or you may have to pay a higher interest rate

Speak to a Home Loan Finder mortgage advisor to find out what benefits you are entitled to as a first home buyer.

What is the First Home Saver Account and am I eligible?

Mar 232011
 

Dedicated savings account for first home buyers

Account must be opened for four financial years before you can access your savings account.

Funds must be used towards the purchase of your first home.

Tax breaks and government co-contributions-interest earned on account taxed at a low 15% rate.  Plus the government will contribute 17% of every dollar you save up to $5000 in a financial year. This means you could be earning an extra $850 each year simply from government contributon

Earn higher interest than regular savings and term deposit accounts.

The First Home Saver Account is an individual account. This means that if you are planning to buy a first home with your partner or friend and you are both first-time buyers you can then pool your savings after four years to buy a home together.

You cannot access your funds early or use them for any other purpose

New legislation has seen it possible to purchase a home within the the four year period but funds must still remain in the account until the end of the period.

First Home Saver Eligibility Checklist

Have a tax file number and provide it in your application

You must not have previously owned a property in Australia or on Norfolk Island which was your primary residence

You must not have already opened a First Home Saver Account unless you closed your previous first home Saver account within the 14 day cooling off peiod

How should I make the transition from renting to buying?

Mar 232011
 

It can be easy to be over excited when looking to buy your first home. Before you even consider looking at new homes, you will need to make sure you are ready for the application process and that your finances and savings are in order.

First Home Buyer Loan Guide and First Home Buyer Mortgages Compared

Mar 232011
 

How should I make the transition from renting to buying?

It can be easy to be over excited when looking to buy your first home. Before you even consider looking at new homes, you will need to make sure you are ready for the application process and that your finances and savings are in order.

What are the benefits of buying my first home?

Mar 232011
 

You know you want to start a new home to start the next chapter in your life, but have you considered all of the benefits of owning your own home?

Pride of Ownership-Give you and your family security into the future with the most important investment of your life. No landlord to restrict how you choose to decorate your home.

Appreciation-While dependent on fluctuations in the property market, property value does appreciate consistently over time.

Exempt from Capital Gains Tax-Providing you use your home as your primary residence for the entire period that you own it, when it comes time to sell all the profits from your sale will be tax free.

Mortgage Interest Deductions-Mortgage interest is deductible on your tax return provided the balance on your mortgage is smaller than the price of your home.

Mortgage Reduction Builds Equity-As monthly repayments reduce the amount owing on your pinciple balance, the principle portion and interest payment increases slightly with each month. This means that on average each $100, 000 of a mortgage will reduce in balance after the first year by about $500, reducing the balance to $99,500.

Equity Loans-Home owners can pay off debt with a home equity loan by borrowing against a home’s equity for a number of expenses including, home improvement, university or medical c

Banks See Surge in Mortgage Refinancing

Mar 232011
 

Now may be the best time to consider refinancing your mortgage.

Thanks to another round of historic interest rate cuts by the Feds, fixed rate mortgages are once again at record lows. Although qualifying for the best interest rates is harder than ever, you could potentially save thousands of dollars a year if you refinance your mortgage today!

As an example let’s assume you have a typical $200,000 mortgage with a 30 year fixed rate of 6.5% interest. You ask your bank about refinancing to a lower interest rate and they present the following:

The bank is currently offering a 30 year fixed rate of 5.625% for 30 years with total points and other closing fees totaling $2220. In other words if you pay the bank $2220 and sign a bunch of paperwork your interest rate will be changed from 6.5% to 5.625%. Is this a good deal?

Let’s break the deal down:

If you do nothing you keep paying your loan as originally agreed your total interest paid for the year is 6.5% X $200000 = $13000.

If you refinance and pay the $2220 closing fee the total interest paid for the year is 5.625% X $200000 = $11250.

By refinancing you can save approximately $1750 a year* ($13000-$11250) but remember you paid $2220 for this privilege.

From hear you can calculate how long it will take to reach your break even point.

Let x = Closing Cost Fees

Let y = Interest savings per year.

Break Even Point = x ÷ y or $2220 ÷$1750 = 1.3 Years

In this example it will only take 1.3 years to break even on your refinance. Every year after that you will be saving money. Providing you have the funds to cover closing costs, and don’t plan on moving within your “break even” point, refinancing will always save you money in interest.

* This savings will be slightly less every year due to principal amortization.

Your Home is Not an Asset!

Mar 232011
 

If you purchased your home for the right reasons, the recent decline in home values shouldn’t be of any concern!

I had an interesting conversation with a fellow alumni the other day. He had just graduated college and was eager to purchase a new home. He tells me that he was “sick and tired of throwing money away by renting”.

I tried not to laugh as the words were coming out of his mouth. The reality was that I had thought the same thing myself when I first graduated from college 9 years earlier. There is something infectious about the optimism of youth.

I shared with him my story of wanting to buy real estate when I was his age and how I laughed when I read that Rich Dad, Poor Dad author Robert Kiyosaki didn’t consider your primary home as an investment.

In hindsight, had I purchased a home when I first graduated college there is a good chance that I would have built up a substantial amount of equity with the run up in home prices over the last few years.

Unfortunately, today there are many individuals and families that bought their primary homes on speculation that home values would continue to advance. Now they have to face the reality of declining home values. Maintaining a steady job is hard enough, adding an additional element to your ability to pay for a house is unnecessary.

Kiyosaki’s point was never fully understood until recently. Your home should not be considered an asset. It shouldn’t matter if home prices are declining if you purchased your home for the right reasons. You will always need a place to live whether you own or rent.

Don’t Buy a House Until You’re Ready

Mar 232011
 

Don’t buy into the hype that if you are renting you are “throwing money away”. When making a decision to buy a new property, make sure that you are truly ready.

With the run up in home prices over the last 7 years, many Americans have begun accepting that the quick road to building wealth is to buy a home. Indeed, there were many folks who bought and sold homes for a tidy profit over this period, but the national rise in foreclosures over the last year is telling a different story. If you are thinking of buying a home in the near future, I suggest you ask yourself the following questions.

Do You Plan to Own for at Least 3 Years

With home prices in most areas of the country in decline, the longer you plan to own the home, the less likely you are to lose money when it comes time to sell. If there is a good chance that you will need to relocate in less than 3 years, you would be well advised to consider renting.

Do You Have an Emergency Fund

Many banks require borrowers to not only have a decent down payment on a new home loan, but also have additional funds set aside in an emergency fund. These funds are essential for any temporary job loss, or other unexpected financial emergency to carry you through. 3-6 months of expenses set aside in a savings account is strongly recommended.

Can You “Afford” the Payment

What you can “afford” and what you can comfortably pay are two completely different things. Even with the tightening down of lending standards by banks across the country, many financial institutions will still approve you for a loan payment near half of your monthly take home pay. If you plan on having a life outside of your house, you’re better off saving your money and renting until you have enough of a downpayment to get your monthly mortgage payment near 25% of your take home pay on no more than a 30 year fixed rate loan. It is also a good plan to pay off as much of your consumer debt as possible such as car notes, credit cards, and student loans. The less debt you have hanging over your head when you move into your new abode, the more enjoyable it will be.

Don’t Forget Taxes, Maintenance, and Insurance

People sometimes justify their desire for a new house by claiming they can buy a house for the same price that they are currently paying in rent. This may be true, but often times they are not taking into account the extra expenses that home ownership entails. Taxes alone easily add another 20 percent to your monthly housing payment. Insurance premiums vary but they range from $450-$2500 or more a year based on the geographic location of the property (for a median priced home). Another large expense that is often neglected is the cost of maintenance. Many financial planners figure in a yearly maintenance cost for their clients of 1% of the homes value (more if the house is older) for repairs, cleaning, and lawn care. You can go several years without spending a dime on repairs and then need to shingle the roof, and replace a water heater in the same month.

Are You Familiar with the Area

One of the complaints that I have heard from friends who have recently bought homes is that they wish that they had bought homes in a different neighborhood. When considering a home purchase consider it’s proximity to your place of work and shopping areas, school district, and the overall upkeep of similar homes in the area. Renting in a new town allows you to essentially test drive a neighborhood before you buy into it. You may find that you favor another area in the town better.

The idea here is to look at the big picture before jumping on a new home purchase. Be sure to take into consideration all of the variables above when making a decision to buy. Many analyst are predicting a further slide in home prices; not only will you be in a better financial situation a year or two from now if delay your purchase, but more than likely, home prices will be the same or even lower than they are now.

When to Refinance Your Mortgage

Mar 232011
 

Don’t pay attention to “Rules of Thumb” when deciding to refinance your mortgage. Instead, run a simple calculation to determine what is best for you. In most cases, you will save money by refinancing to a lower rate, but how long it takes to realize these savings can vary.

As an example let’s assume you have a typical $200,000 mortgage with a 30 year fixed rate of 6.5% interest. You ask your bank about refinancing to a lower interest rate and they present the following:

The bank is currently offering a 30 year fixed rate of 5.625% for 30 years with total points and other closing fees totaling $2220*.

In other words if you pay the bank $2220 and sign a bunch of paperwork your interest rate will be changed from 6.5% to 5.625%. Is this a good deal?

Let’s break the deal down:

If you do nothing you keep paying your loan as originally agreed your total interest paid for the year is 6.5% X $200000 = $13000.

If you refinance and pay the $2220 closing fee the total interest paid for the year is 5.625% X $200000 = $11250.

By refinancing you can save approximately $1750 a year** ($13000-$11250) but remember you paid $2220 for this privilege.

From hear you can calculate how long it will take to reach your break even point.

Let x = Closing Cost Fees

Let y = Interest savings per year.

Break Even Point = x ÷ y or $2220 ÷$1750 = 1.3 Years

In this example it will only take 1.3 years to break even on your refinance. Every year after that you will be saving money. Providing you have the funds to cover closing costs, and don’t plan on moving within your breakeven point, refinancing will always save you money in interest.

* Rate and closing fees provided by USAA Federal Savings Bank 1/31/2008.

** This savings will be slightly less every year due to principal amortization.

 

Re-open closed accounts?

Mar 232011
 

Has anyone had success in re-opening closed, paid accounts for any of the following?

 

US Bank

Bank of America

Victoria’s Secret

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