What are the benefits of co-borrowing?

Mar 232011
 

Should I borrow with someone else?

If you have been looking at the costs and eligibility requirements of a first home loan, you may have found you can’t afford to buy a home by yourself. As a result you may be considering buying your first home with a friend or family member, and you’re not the only one because co-borrowing is a growing trend in Australia and there are a number of home loans which can cater to these specific needs.

What are the benefits of co-borrowing?

It can be easier to save the deposit amount. With two people saving for a deposit it can be quicker and easier to raise the amount you need. You may also be able to put down a larger deposit and in turn borrow less, saving you money in interest over the long-term.

You may be able to borrow more. When your income is combined with a friend or family member, your joint income may make you eligible to broker a larger loan amount and you can therefore consider higher value properties.

It can be easier to make the repayments. With another person to help you meet the monthly commitments of your home loan less of your income needs to be committed to your repayments giving you more to spend on living your life. Some lenders will even allow as many as four people to apply for a joint mortgage which can make the repayment commitments even easier, just keep in mind that you will probably also need to look at a bigger and more expensive property to house everyone

 

What is a family guarantee and how does it work?

Mar 232011
 

What is a family guarantee and how does it work?

You use the equity in the home of a family member to guarantee your deposit. If you don’t have the available funds to cover the amount you need for your first home loan deposit, your immediate family can act as guarantor over your loan. The two main types of family guarantee are security or property guarantee, and an income guarantee.

A limited liability guarantor. This type of family equity guarantee allows a family member to offer their property as security for a portion of your home loan. This is usually between 10 and 20% of the property value. The property you intend to purchase then acts as security for the remaining 80% which means that you then have two loan facilities but neither of those exceed 80% of the property value so you don’t need to pay lenders mortgage insurance. Once you are able to take over the entire loan you remove the family equity guarantee, and if you default the guarantor is only liable for the portion of your loan which was secured by their property.

An income guarantor. This type of family guarantee means that a family member guarantees your home loan repayments for a certain period of time. This can help you through a period where your income doesn’t meet your repayments such as the early stages of owning your first time, however if you default on your home loan repayments your family guarantor is liable for the full repayment amount.

Second mortgage family guarantee. A family member may also choose to take out a second mortgage on the property you are buying is your first time to help you meet the repayments because you can’t cover the entire cost each month on your own. In this case your family guarantor gives you the money for a portion of the property price and they are then responsible for the amount of their loan. You then make the repayments on your loan for a portion of your home and your family member makes the repayments on their portion of their loan on your home.

Gift of loan amount. In this case a family member can take out a mortgage on their own property and give the money from the loan amount to you to help with your deposit and loan expenses. With this type of family equity guarantee your loan and a home, and you’re guarantor’s loan and their home are not linked so you are each responsible for your own repayments and properties.

You will need to choose a specialised family equity loan. While you are still eligible for the first home owners grant and you have a wide choice of home loan options, you do need to choose a specialised family equity loan product. Off the plan loans and mortgage insured low doc loans are not eligible for a family equity guarantee. When choosing your family equity loan you need to be aware of all of the standard home loan features and fees as well as any fees which may be charged if you’re guarantor decides to sell the property which is acting as security for your loan.

Plan your family equity repayment options. Your lender may be able to help you obtain the necessary paperwork to help you and your family guarantor formalised an agreement about how you will repay them. The type of repayment options available to you will depend on the lender you choose.

What is a deposit bond and how does it work?

Mar 232011
 

What is a deposit bond and how does it work?

It delays your requirement for a deposit. A deposit bond or a deposit powered guarantee as it is also known acts as a substitute for a cash deposit on a property until settlement.

You know you will have the deposit amount available in the near future. A deposit bond can suit you if you have your cash locked away in a fixed term deposit investment, or in an investment property and you need more time to convert those assets into a cash deposit. This means you know that you will have the cash available at the time of settlement for your first home and first home loan, and so you don’t have to miss out on a great deal.

You can apply for a deposit bond if: you are an Australian citizen, you are a permanent resident, you are purchasing your first home, you are an investor or you intend to bid at auction.

A deposit bond insures your purchase. A deposit bond works in the same way as an insurance policy where the deposit bond informs the vendor that your insurance company will pay a 10% deposit to the to cover circumstances where a deposit would normally be forfeited by the vendor. While there is no money actually changing hands all of your purchase funds are paid at the settlement of the sale when the purchase price is then paid in full and your deposit bond lapses.

A deposit bond can be organised for up to 10% of the purchase price for your choice of terms. You can choose a short term deposit bond guarantee for settlement terms up to 6 months, or a long-term deposit bond for settlements up to 48 months.

Always check that a deposit bond will be an accepted form of payment. While a deposit bond guarantees your deposit when purchasing your first home, not all sellers or estate agents will accept a deposit bond. The vendor may need your cash deposit to go towards their own home loan deposit for their next purchase, and so may be unwilling to accept the deposit bond. Real estate agents are also paid their commissions from the deposit and so some agents may refuse to accept an offer on a property if you plan to use a deposit bond. This can then trap you into a sale because most sales contracts do not specifically mention the use of a deposit bond. If you are forced to produce a cash deposit because your deposit bond is not accepted, you will still be charged for the use of a deposit bond, plus you will have to find the cash for your deposit.

If your deposit bond has to be paid your insurer will need to be reimbursed. A deposit bond is a guarantee to the vendor that you will pay them the full amount of the sale at settlement. Ordinarily a deposit bond will not require you to produce the deposit amount unless your insurer is required to pay the vendor the deposit bond, then your insurer will come to you looking for the amount of the deposit paid.

A deposit bond on loan approval. This is the most affordable type of deposit bond and is valid for up to 12 months. In this instance your deposit bond is approved in the lender’s home loan approval process on a loan which is unconditional.

A deposit bond without approval from your lender. This type of deposit bond can be valid for up to 48 months, but because of the additional paperwork required to assess your deposit bond application independently from your home loan approval, it can be a more expensive type of deposit bond. This deposit bond is not part of your lender’s loan approval process, but is similar to the process required to apply for a loan.

A low doc deposit bond. A low doc deposit bond allows you to self certify your income so you only need to provide minimal documentation to confirm your details. You will need to be able to verify: your identity; the capital improved value of the existing property you own which you are using as security for your deposit bond; your repayment history on your existing mortgage; and a copy of the contract of sale.

You can determine your eligibility for a deposit bond. To give you an idea of whether you can successfully apply for a deposit bond, add the amount which you need to secure using a deposit bond, to the outstanding loan amount on the property you are using a security. If the total is less than 80% of the value of the property you are using a security, your deposit bond is likely to be approved.

Why is my deposit so important?

Mar 232011
 

Why is my deposit so important?

One of the things your first home buying plans will continue to come back to is the amount of deposit you have, compared to the amount that you still need. You’re probably sick of hearing about it but when you realise exactly how important it is that you have enough deposit, and as much deposit as possible, it will make sticking to that savings plan all the easier. The deposit for your first home loan is important because:

It’s now very hard to get a 100% loan. In the past a 100% loan was an option if you didn’t have a deposit and wanted to borrow the full amount you needed to buy your first home. In some cases you could even borrow 110% to cover the fees from your lender and the government charges associated with buying a home. However lenders have become increasingly wary of 100% loans and most will require at least a 5% deposit of the purchase amount.

The larger your deposit the smaller your loan. If you can put down just 10% deposit that means you can borrow that much less from the bank and in turn pay less interest and make less repayments to pay off your loan sooner as it is a smaller amount.

If you have a 20% deposit you can avoid lenders mortgage insurance. Lenders mortgage insurance or LMI is what the bank will charge you depending on how risky you are as a lone candidate. Therefore if you have more of a deposit, and are borrowing less from the bank you are less committed and therefore less of a risk and so lenders will waive the costs of LMI.

How much deposit do I need?

You will always need to remain aware of how much you need for your home loan deposit to make sure your savings are on track, and your loan will be processed without a hitch when it comes time to buy your dream home. To give you an idea of how much of a deposit you will need according to the property prices you are looking at:

You will need to know how much deposit you are going to contribute. This comes back to whether you plan to contribute a typical minimum deposit amount of 5% or whether you are interested in pulling together 20% of the purchase price to help you avoid lenders mortgage insurance.

Consider how you will use the government first home owner grant. You can use the $7000 first home owner grant to make up the rest of your deposit so you can reach your goal deposit amount sooner. Just be sure to make your lender or mortgage broker aware of these plans so the paperwork can be processed in time.

Consider a 5% or 20% deposit on your purchase price:

 

How do I manage my property search?

Mar 232011
 

How do I manage my property search?

Help your memory by taking notes. You are going to be looking at a lot of properties in the search for your first home so from the beginning start taking notes and photos where allowed, so you can remember the prices, the locations, the neighbourhoods, the features and the drawbacks of each property you look at, and save time revisiting the same properties and making the same mistakes in your search.

Make the time to search. The last thing you want to do when looking for your dream home is rush. set aside blocks of time to search and consider your needs so you can stay focused and be successful.

Make sure you’re ready. This means making sure you have your pre-approval organised so you are looking in the right budget, because even over the course of a couple of months the housing market and prices can change significantly and all of your previous searches will have been in vain.

If you are bidding at an auction you’ll need to be ready to buy. If you have the highest bid above the sellers reserve price all you need to provide is 10% deposit of the reserve price. However there is no cooling off period so have your deposit and deposit bond ready!

If you are making an offer on a property for sale you have a little more breathing time. When you put in an offer and sign and exchange contracts with the seller, you will also need to pay a 10% deposit. After exchanging contracts you will usually also benefit from a cooling off period which can be around 3 to 5 days, however in Western Australia there is no cooling off period.

What should I look for in the best property?

Mar 232011
 

What should I look for in the best property?

Talk to your real estate agent about

What the property last sold for

Whether it is heritage listed

Local council rates

Any plans already approved for renovations

Council check for illegal additions

What is the required settlement period

Has a title search been done

Inspections you will need to organise

Checking the underfloor areas for ventilation

Checking that the exterior walls are square and not cracking

Checking that the exterior walls are square and not cracking

Checking the weatherboards for rot

Condition of the roof, guttering flues, chimneys and flashings

Evidence of water damage or mildew inside in the bathrooms wet areas and in the garage

Pest inspections for termites and borer

The wiring water, and gas services

Possible damage by nearby tree roots.

Obligations on common properties. If buying strata property you will need to ask for certificate showing information regarding:

Management committee

Insurance costs

Levy costs

Deeds and books

Restrictions on pets

Parking

How common areas can be used

Home Loan Tip: Make a List-Before you start looking make a list of the things you like about where you’re living now, and the things you don’t like. Also decide how many bedrooms you want and how many bathrooms, and any other features such as a fireplace, a big backyard or an enclosed garage. Chances are you won’t find everything on your list in your first home but now you know the things which are most important.

Where do I look for the best first home for me?

Mar 232011
 

Where do I look for the best first home for me?

Transport-Check the public transport to work, school or the local shops. The last thing you want is to have to spend hundreds of dollars commuting each day.

Proximity to Family and Friends-Whatever your socialising needs consider how far you will have to travel for family functions and parties a friend’s places.

Noise-Busy roads, flight paths, factories or shops all play a part.

Parking-If looking to buy inner-city, is there off-street parking available?

Schools-Good schools in the area?

Property Search Tip: Consider the Future:-Always remember when you are buying your first home it may not always be your dream home, but if you make the right choice you will be able to turn that first home into an investment for your future. t can even pay to research sales in the area over the last 12 months to see where the area has come from and where it might be going.

How do I get preapproval on my first home loan and why do I need it?

Mar 232011
 

How do I get preapproval on my first home loan and why do I need it?

After all of the time you spend searching and comparing for the perfect home loan, you don’t want to let that home loan deal get away.

Your finance will be confirmed and so will your budget. When you secure preapproval on your first home loan you are locking in your loan application and so you know exactly how much you are able to borrow and how much of a deposit you need. Not only is this confirmation a load off your mind, it also gives you a solid budget to work with in your search for the perfect first home.

You will have more bargaining power when you find the right home. If you can show a seller or a real estate agent that you have your finance preapproved they can feel secure in knowing that you are serious about the sale and that there will be few hassles with the settlement period. This can give you more power in negotiating a better price on your first home.

You can secure preapproval in writing.  If you have the details in writing you have a secure contract with the bank regarding your interest rate, your home loan deal and your home loan amount.

Same-day approval of your loan when you find your first home. When you do find the first home of your dreams you simply need to contact your mortgage broker or lender with a copy of the sale so they can transfer your pr-approval into full approval and this can often take as little as an hour.

Pre-Approval Tip: Make sure you read all of the conditions which come with your preapproval contract. This could include:

You finding a suitable property

The bank receiving a registered valuation of the property

Mortgage insurance being accepted

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.

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.

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