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How to Get a Home Loan: The Ultimate Guide

contact@lovemyonlinemarketing.com (Melody Jaimon) — Wed, 08 Jun 2022 06:27:31 GMT

When it comes to buying a home, the biggest hurdle for many people is qualifying for personal loans. After all, lenders expect you to repay them with interest — and they won’t give you money unless they’re sure you can do that.

Limited funds, lack of credit history, or a previous bankruptcy are all things that could make it more difficult for you to get financing. That said, there are a variety of mortgage programs out there, and if you want to buy a home, now is the time. The following guide will help you understand how to get a home loan. Read on to get the details on how you can purchase your place and begin making those mortgage payments sooner rather than later.

What is a home loan and what are the different types available to you?

A home loan is simply a type of loan that helps you finance the purchase of a house. There are many different types of home loans available, each with its terms, conditions, and requirements.

Different Types of Home Loans

1. Bridging Loans

A bridging loan is a loan that is meant to help you in the time between selling your old home and buying a new one. It's technically another home loan that you take out on top of the one you already have. You get extra money to help you buy a second home while the first one is on the market. During the "bridging period," you have two loans and usually only pay the interest on one of them. When your current home sells, the bridging loan is added to the loan you choose for your new home.

Most of the time, a bridging home loan is only for up to 12 months, and it usually has higher interest rates than a standard home loan.

2. Construction Loans

Construction loans are offered to people who are building a new house. The credit provider will provide you with the amount you need to complete the project. You will repay them in instalments and have the option to pay off the loan early if you’re in a position to do so. Construction loans are usually given as unsecured loans with a variable interest rate and fixed repayment term. You may also be required to pay an upfront fee when you apply for a construction loan. These payments are typically made in five to six stages, which are as follows:

Deposit - Payment made to the builder to begin construction
Base - Completed concrete slab or footings
Frame - Complete and approve the house frame
Lockup - Consists of windows or doors, roofing, brickwork, and insulation.
Fixing - Plastering, kitchen cabinets, appliances, bathroom, toilet, laundry fittings/tiling, etc.
Completion - Fencing, site clean-up, and final pay to builder

3. Guarantor Loans

A home loan with a guarantor is not a specific product. There are home loans that let you use a guarantor. A guarantor is someone (usually a close relative like a parent) who agrees to pay your loan back if you can't. People with low incomes or having trouble saving up for a deposit can benefit from having a guarantor because some lenders let guarantor-backed customers get a home loan with no down payment.

4. Investment Home Loans

As the name suggests, an investment home loan is a loan taken out to buy a property that will be used as an investment, rather than a place to live. Investment home loans typically have higher interest rates and monthly fees than owner-occupier loans.

The Australian Taxation Office (ATO) states that interest payments (among other things) can be assumed as a tax deduction if you take out an investment home loan.

5. Line of Credit Loans

A line of credit loan, also known as a home equity loan, lets you borrow money against the equity in your home. This type of loan gives you access to a line of credit that can be used for anything from renovations to investment properties.

Lines of credit could be used for a variety of purposes, including:

Home improvements and repairs
Purchasing a Second House
Purchasing a Vehicle
Taking a vacation
Paying for a wedding, etc.

6. Low-doc Home Loans

A low-doc home loan is a type of loan available to people who may not have the traditional employment history or income documentation required by lenders.

Low-doc loans are typically available to:

Self-employed people
People with multiple jobs
People with irregular incomes
People who get paid in cash

7. Owner-occupier Home Loans

If you’re looking to buy a home to live in, you’ll need to apply for an owner-occupier home loan. To qualify for this type of loan, you’ll need to have a good credit score and a steady income.

Owner-occupier home loans often have a lower interest rates than investment loans, and you’ll generally be able to borrow a larger amount of money.

8. Refinance Home Loans

If you already have a home mortgage and want to switch to a different lender or change the terms of your loan, you can apply for a refinance home loan.

To qualify for a refinance home loan, you’ll need to have equity in your property. Equity is the portion of your property that you own outright or the portion you’ve paid off.

For example, if your property is worth $500,000 and you have a loan outstanding of $400,000, you have $100,000 in equity.

You can use this equity to refinance your home mortgage by borrowing against it. This will give you access to a new loan with different terms, such as a lower interest rate or a different repayment period.

9. Reverse Mortgages

A reverse mortgage is a type of home loan that allows you to borrow money against the equity in your property, without having to make any repayments.

Reverse mortgages are usually available to people over the age of 60, and they can be used for things like home repairs or renovations, medical expenses, or everyday living costs.

To qualify for a reverse mortgage, you’ll need to have equity in your home.

How is the home loan application process?

The home loan application process can be lengthy, but it is not overly complicated. It will usually entail the following steps:

Gathering the necessary documents
Comparing mortgage providers
The lender's preliminary evaluation
Making an application to the lender
A property valuation is completed by the lender.
Loan approval or rejection by the lender.
They make you an offer.
The loan has been settled, and the funds have been advanced to you.

Getting Pre-Approved

Documents for Pre-Approval

Pre-approval for a home loan allows you to borrow up a certain amount, providing you a decent idea of something that you can and cannot afford. The following documents are required for home loan pre-approval:

Proof of income (pay slips, tax returns etc.)
Bank statements and proof of savings
List of your current assets and liabilities (e.g. credit card and personal loan debt)
100 points of ID (driver’s license, passport, Medicare card etc.)

Although obtaining pre-approval does not guarantee that you will be approved for a home loan, it can help you save time and money by avoiding the hassle of applying again.

How long is a mortgage pre-approval good for?

Most traditional lenders offer mortgage pre-approval, also known as conditional approval, for three to six months. They don't like to do pre-approvals for any longer than this because people's financial situation, as well as the property market, can change.

Pre-approval for a loan amount can give a good idea of your borrowing power, which can speed up the application process.

How much of a mortgage can you get?

Technically, there is no limit on how much individuals can borrow for a home mortgage, but how much you can borrow depends on the following factors:

annual pre-tax annual salary
other regular earnings you receive (rental income, second jobs, etc.)
monthly living expenses
regular loan and credit repayments
financial history
total number of dependents
marital status
type of mortgage (owner-occupier, investor etc.)
length of your mortgage

Common Mortgage Requirements

Applying for a home mortgage can be a time-consuming process, but you can shorten it by knowing what you'll need ahead of time:

how much deposit for the house (at least 5%)
credit history
steady income
lack of debts
photo IDs (drivers licence, passport, etc.)
bank statements and payslips
council rates of any of your properties

Lenders mortgage insurance (LMI) is insurance policy that protects the lender in the event that you default on your loan. It is required if you are borrowing more than 80% of the property value.

Factors that Lenders Consider in a Home Loan Application

The lender will consider the following factors when reviewing your application:

Income and Employment

Lenders will want to know that you have a steady and sufficient income. They’ll want to see at least two years of your recent income tax returns. This is to ensure that you can make your monthly payments, and it also shows the lender that you haven’t taken on too much debt.

Credit Score

Your credit score will be one of the major factors in your home loan application. Lenders use credit scores to measure your financial responsibility, so if you have a high credit score, it means you are less likely to default on the loan. The higher your credit score, the better chances you have of getting approved for a home loan with a lower interest rate.

Credit History

Along with your credit score, lenders will also look at how much debt you currently owe and how long you have mortgage repayments. If there is little or no existing debt, this can show lenders that you are responsible with money and can handle additional financial obligations like a mortgage payment.

Spending Habits

How you spend your money also plays a role in the lender’s decision to approve you for a home loan. Suppose you have been living within your means and are currently making ends meet with your current income. In that case, this can show lenders that you are financially responsible and will be able to handle the additional financial obligations of a home loan.

Length of Employment

Lenders want to see that you have been working at your current job for at least two years before approving you for a home loan. This shows them that you are reliable and dependable, which is important in managing a home mortgage payment. They want to ensure that you can make your payments each month as scheduled.

Debt-to-income Ratio

The debt-to-income ratio is the percentage of your gross monthly income toward paying all your debts, including mortgage payments. The higher this ratio is, the more likely you will be approved for a home loan with a lower interest rate. This ratio is calculated by dividing your total monthly debt payments by your gross monthly income. Lenders like to see at least 35% or less of your gross monthly income going toward all debts and bills, including housing costs.

Assets and Liabilities

Lenders want to know that you have enough assets to pay for the home loan. This can be done by simply looking at your monthly income. The more money you make each month, the more likely you will be approved for a home loan.

The lender will also check your liabilities and the total amount of debt you owe. They want to ensure that your liabilities are lower than your assets and income so that you can afford the additional financial obligation of a home mortgage payment each month.

Tips for People with Bad Credit History

If you have a bad credit history, there are still options available to you to get a home mortgage.

Here are some tips:

Save up for a larger down payment: A larger down payment will show the lender that you are serious about buying a property and that you have the

financial ability to do so.

Look into alternative lenders: There are many alternative lenders who may be willing to work with you even if you have bad credit.

Fix any errors on your credit report: Be sure to check your credit report for any errors and dispute them if necessary.

Improve your credit score: You can improve your credit score by making all of your payments on time, keeping your balances low, and using less than 30% of your credit

Consider a co-signer: If you have someone with good credit who is willing to co-sign your loan, this may improve your chances of getting approved.

Get Professional Advice

If you're having trouble getting a home loan, it's important to get professional advice. A mortgage broker can help you find the right lender and get the best possible rate.

Enigma Financial Planning is here to help you through the process of finding and securing a home loan, even if you have a bad credit history. We will work with you to find the best possible rate and terms for your financial situation. Contact us today to get started.

Five Reasons You Need A Financial Planner Now

contact@lovemyonlinemarketing.com (Melody Jaimon) — Thu, 29 Sep 2016 13:13:00 GMT

When it comes to your finances, don’t get stuck in a reactive cycle by only making short-term financial decisions at the cost of your long term vision. The saying ‘Failing to plan is planning to fail’ also applies to your goals in life. Having a sensible financial plan to navigate life’s daily rollercoaster is essential.

Here are five reasons to work with a qualified, competent and honest financial planner to get your finances back in shape.

REASON 1: WORK WITH EXPERTS WHO LOVE PERSONAL FINANCE

It is often tempting to take a DIY approach in life, including managing all aspects of personal finance. However, the strain of being stretched across different disciplines and being a jack of all trades (but master of none) is unwise, especially when you need to plan for your future financial self. Many people try to “wing it” when it comes to managing their personal finances, only to find themselves under financial strain some time down the track and without an opportunity to stop working, or even take a hard-earned family holiday. You would do well to remember the adage “Do what you do best, and outsource the rest.”

It may be easy to ‘justify’ a DIY approach to managing personal finances due to the disturbing media coverage of unscrupulous financial planners, however it is possible to find a financial expert who can provide advice tailored to your personal needs and financial goals, who is ethical and that you also get along with.

ASIC’s financial advisers register allows you to run background checks on a financial adviser by checking their history, qualifications and current employment status. The value provided by a trusted financial planner who has significant experience in the financial services industry, and who is passionate about personal finance and understands financial markets, will soon become apparent when you start setting and achieving specific and measurable goals.

REASON 2: BEING PREPARED FOR THE UNEXPECTED

Life throws curveballs at us all the time. If you haven’t put in place a sound financial plan, you may be out of pocket, or worse, be in severe financial stress by a single unfortunate life event. Do you have a ‘Plan B’ if you suffered from a long-term illness? Knowing that you have the right personal insurance in place, such as a dependable income protection policy, will allow you to take your mind off the financial concerns, and allow you to focus on recovering from life’s unexpected events.

Ask for a financial planner who can clearly explain your current life insurance cover to you, so that any gaps are discovered and reviewed, as this is your financial safety net when things don’t go according to plan. The right financial planner will take the time to discuss your insurance policy and options with you. This will let you understand which risks you are covered for, and which features may be most relevant to your circumstances. As anyone with car insurance will tell you: “We’re all great drivers…but we still have car insurance ‘just in case.’

REASON 3: TAKE CARE OF YOUR RETIREMENT…BEFORE YOU GET THERE

It is often touted that many Australians will not have enough in superannuation savings for a comfortable retirement. While there are some stop-gap options available, such as accessing home equity, this can be prevented by getting on the front foot early, and getting the right superannuation advice for your personal circumstances and goals.

One of the most fundamental financial principles is that of the time value of money. This principle states that a dollar today is worth more than a dollar in the future, as a result of inflation eroding your purchasing power over time. Being a good steward of your money means making wise choices, so that you can make your money work hard for you.

To make sure you get as close to your retirement goals as possible, it is important that you increase your financial education quickly, for you to start making better financial choices sooner. Working with a qualified, competent and honest financial planner provides you with the tools and strategies to give you the best chance of having a stress-free retirement.

REASON 4: BALANCING THE LATEST INVESTMENT TRENDS WITH TIME-PROVEN PRINCIPLES

The financial investment markets seem to be increasingly volatile in recent times. A financial expert is able to work with you to set up an appropriate investment strategy that is suitable for your personal needs, and to help you keep your investment objectives on track.

Just as cars are continuously being improved and become more efficient, new financial products are always being developed to provide cost-effective and efficient solutions to financial problems. A good financial planner will provide a number of options on the appropriate financial instruments that will allow you to achieve your personal financial goals.

Obtaining factual information on available financial products and considering relevant strategies takes time. When taken together with constantly changing legislative frameworks, most people may end up chasing their tails. Working with a financial expert, who is required to remain up-to-date with the constantly changing financial landscape, will allow you to implement a balanced financial plan that uses the most relevant products together with time-proven strategies and principles.

REASON 5: GET THE RELEVANT INSIGHTS

In an age where information is so easily accessible, it is easy to be overwhelmed with financial facts and figures, all of which mean nothing unless you apply the right lens to translate data into useful insights. A financial planner that understands all aspects of personal finance will provide you with the right analysis and recommendations, to provide you with a financial strategy that is relevant to your unique goals and circumstances.

Many people don’t achieve their goals because they focus on the wrong things. A good financial planner will help you shift your focus to the relevant areas, and will work with you to set and achieve your desired outcomes, so you too can win financially.

To start taking positive steps towards a better financial future, Enigma Financial Planning offers obligation-free initial consultations at no cost to you, to get your finances in order now.

This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.

Enigma Financial Planning Pty Ltd (ABN 63 612 266 083) is an authorised representative and credit representative of AMP Financial Planning AFSL 232706.