Which Home Loan Is Best For You?

THERE are two main things you need to consider when you're looking to enter the property market:

  • Finding the property that ticks all the boxes to suit your lifestyle
  • Securing a financial arrangement that suits your circumstances

Most people who buy a home will have to borrow to complete the purchase and the lender will maintain a legal claim to the property until the mortgage is fully paid off.

If the global financial crisis taught home buyers anything, it's that they must carefully assess their financial situation before approaching a lender.

The loan amount should never exceed what the borrower has determined they can comfortably afford, taking into account any changes that may happen in the future.

There are additional costs to consider with a house purchase, such as legal fees, loan establishment fees, government charges, body corporate fees for a unit purchase, rates, reimbursing property inspection fees, moving costs, furniture and fittings and building and contents insurance.

While lenders have their own way of assessing clients for loan eligibility, they generally use similar methods to work out the amount they will lend you.

The major considerations are:

  • Your income,
  • your ability to repay the loan and
  • the "loan to value ratio" - the percentage of either the purchase price or the value of the property that lenders will agree to lend.

A lender will work out the maximum amount you can borrow. However, this may exceed what you have determined you can realistically afford.

Realistic affordability includes:

Responsibility to choose a loan package in accordance with this.

A rule of thumb is to spend less than one-third of your gross income on mortgage repayments.

Deposit Contribution Amount:

Generally you will be required to contribute to the purchase price of a property. The amount you will need to contribute may vary from lender to lender and can be affected by the type of loan available.

A deposit of at least five per cent of the purchase price is a common requirement.

Be warned against giving a false representation of your deposit, as some lenders require you to provide bank statements to prove that a certain amount of the deposit came from your own savings. However, some institutions now recognize a contribution to the purchase price or security offered by the borrower's parents or relatives.

If you are borrowing 80 per cent or more of the purchase price, lenders usually require you to buy mortgage insurance.

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