Are you saving for a house deposit? The first time you buy a home is exciting, but it can also be stressful. The home loan application process can be tricky to navigate for beginners, and when you’re investing such a large amount of money in a single purchase, you want to make sure you’ve got it right!
Luckily, we have put together your complete beginner’s guide to getting a home loan. Read on for all the answers to your questions.
How Much Do I Need For A House Deposit?The first thing to do when you decide you want to buy property is save up a deposit. This is the amount of money you will pay upfront, while the rest of the property purchase price is paid off over time through your mortgage.
To get a home loan, you will normally need 20 per cent of the price of your new home ready to go. There are lots of different ways to save to help you reach this goal, but it will take some time.
Additionally, you will need to pay stamp duty when purchasing property. Stamp duty is a tax charged by the government on all real estate purchases.
Sometimes, you can buy a home with a smaller deposit. Explore options such as paying lenders mortgage insurance (LMI), asking someone to be your guarantor, or government assistance for first home buyers. All of these can help a lot when you’re trying to get onto the property ladder.
How Do I Choose A Home Loan?Most people take decades to pay off a home loan, so it’s important that you carefully consider your options before committing to a mortgage. The key features to consider are:
Loan type (principal and interest or interest-only) Loan term (length of time of your loan) Interest rate.A principal and interest loan is the more common option. This means that you pay off the loan gradually, paying both the interest on the loan and the principal. An interest-only loan means you are only paying the interest, so your debt isn’t reduced. Some loans will be interest-only for a period of time, such as the first five years. This can keep your repayments down, but it does mean that it takes longer to pay off your loan.
Shorter loan terms are preferable as this means you will pay less interest in the long run. However, shorter terms do mean higher repayments, so it’s a juggling act to ensure you can pay off the larger amount each month.
The lower the interest rate, the better when it comes to home loans. You can choose between a fixed interest rate (which stays the same regardless of fluctuations in the market) or a variable interest rate. Locking in a low fixed rate can be an advantage. However, a variable rate offers greater flexibility.
Am I Stuck With The Same Home Loan Forever?No! In fact, it’s recommended that you regularly look for better deals and consider refinancing. You can change lenders for a better interest rate as long as you’re not locked in with your current mortgage (such as with a fixed interest rate).