My house is my castle – Englishmen say. But it is also an opportunity to save on rent. Arrange the living space of your choice. Settle for a couple or move out from their parents, or you just want to take a loan under the smallest rate? Invest money to a second home or to make some renovations. But such a purchase perhaps is the most expensive in your life. So for the majority without a bank loan cannot do. Australian banks, like Westpac, ANZ, AFG, NAB, RAMS, Commonwealth, St. George and others have many products to meet your financial needs when buying property, like mortgage, equity loan, refinancing, land, construction or renovation loan and other credits with fixed or variable percentage rates. However, it may be even more difficult to prepare all the necessary documents and obtain the home loan itself. A large credit amount increases the importance of choosing the right product because even the opportunity to get a loan with a 0.1% reduced interest rate enables you can save thousands AUD for the period of crediting. How to choose a bank and get financing on the most favorable terms, even if you have a bad credit rating? Should you apply to mortgage brokers like Aussie, Mortgage choice, Mortgage ezy, National mortgage company and others or do all job by yourself? Bankchart.com.au assists you to make the necessary actions.
Step one. What is a mortgage loan? What types of such loans are provided in Australia?
A mortgage is a credit from a financial organization or a bank provided to an individual to assist him to buy a flat or a house, which will act as collateral. In Australia, home loans are provided to 30 years. Usually, an initial advance is required in the amount from 5 to 10%, but it can be higher. The principal and interests expenses can be repaid on a weekly, fortnightly, or monthly basis. The maximum amount of a property loan can be from hundreds of thousands of AUD to several million. The percentage rate can be fixed and variable and varies in Australian banks from 3,5 to 8% yearly.
There are a lot of kinds of property credits in Australia depending on the product features:
Package proposal – is a complex offer from a financial organization, including a transactional account and a banking card. A client usually pays for such a servicing, but receives additional benefits, like: discounts on the interest rate during a particular period of time (often for the first year), a free credit card, reduced insurance tariffs and others
Loans with special features – Australian banks can attract new clients by different features and options like credit holidays possibility, split and redraw abilities, early exit without penalties, only interest repayment option, no scheduled repayments function
A complex credit line secured by real estate – you can use loan funds for any purpose be it a purchase of a house, car, holidays or wedding
Refinancing home loans (definition) - refinancing of a mortgage credit received in another financial organization. Especially true if you made out a mortgage at a fixed rate, while the market rates in the financial market went down
Loans for second home purchase or investing - are considered riskier compared to the first purchase of a real estate for housing, therefore a higher interest rate can be set for them
Mortgage for expats – some Australian banks offer property loan proposals for foreigners
Home loans with a fixed or variable percentage rate – fixed percentage rate options usually acts only for several years and variable rate enables you to get benefits if the percentage rates on the Australian financial markets decreases and you will suffer otherwise
Land loans - land purchase loans for real estate construction
Contraction and renovation credits – can be provided under the best conditions even for persons with the bad rating if you provide a property as a collateral
Home equity loan – is financing on a variable or fixed interest rates for any purchase secured by your real estate
Step two. How to compare mortgages?
When applying for a property loan it’s important to appraise your monthly revenues and expenses to select the mortgage product, which fits you more and also the appropriate term, sum, and the frequency of the future periodic repayment. By Australian law, you must not be charged more than 48% yearly on your mortgage (including percentage and commission costs). Also you must estimate all price and non-price parameters of future credits and also additional costs, which there are a lot on real estate loans, like:
- Percentages rates: varies from 3,5% to 8% yearly in accordance with our investigation, depending on your credit score, the bank, the credit term, the initial advance, the type of repayment (principal and interest, only interest), the kind of purchase (first home for living, for investment), the presence of advertising conditions, the type of the percentage rate (fixed, variable) and other factors.
- Australian banks fees:
- One-time commissions – Australian banks charge from 0 to 750 AUD in accordance with our investigation. The tariff may consist of two and more commissions, like the approval tariff or the credit account opening fee. The commission can be charged as an established sum in AUD and as a percent of the credit size. Australian banks can provide discounts for the tariffs during limited advertising periods of time
- Periodic/servicing fee – is charged with an annually or a monthly periodicity and ranges from 0 to 25 AUD
- Discharge fee – is charged when a client repays his loan ahead time. It can be waived for loans with variable rates or after some period, for example, after the first five years of the credit redemption. Remember that Australian banks are not allowed to use exit commissions to discourage you from switching your credit to another financial organization
- Late payment fee – is charged when you break your loan redemption schedule and delay the repayments. Such a situation also lessen your credit rating
- Refinancing tariffs – different commissions can be charged by your new mortgage bank
- Redraw commission – is a fee for a redraw option
- ADDITIONAL EXPENSES:
You must be prepared for additional mortgage expenses, like:
- Insurance tariff – Australian banks generally requires you to insurance the purchasing property and sometimes the content. But if you make a more substantial initial advance (for example, more than 20% of the estate) such a payment may not be claimed. Insurance conditions range deeply in price and scope, so get sure you attentively read the conditions of your insurance service.
- Stamp duty – such tax is charged by the government and depends on the estate price and location and other factors
- Moving expenses - range from fellow to fellow and can include utilities connections, cleaning, transportation, and other costs
- Brokerage - consultancy services can be quite high, but very useful, especially if you do not understand the real estate market
Building and pest inspections costs – can be about 800 AUD and can save your money in the future not to mention peace of mind
Foreign Investment Review Board (FIRB) approval commission is relevant to foreign investors and depends on the price of the purchasing estate
From non-price features of a mortgage, first of all, an estate buyer must consider:
- Maximal period – vary from 1 to 30 years
- Credit size – ranges from 10 000 to 4 000 000 AUD
- Repayment frequency – Australian banks propose to clients a quarterly, monthly, fortnightly or a weekly frequency of redemption
- Percentage rate kind. The percentage rate on your mortgage credit can be variable or fixed. The last one generally is set for a limited period of time (to 5 years), and loans with variable rates generally have more convenient conditions of early repayment
- Other parameters – revenue requirements, loan holidays conditions, the necessary documents, and other features may be essential options for you.
Step three. How to apply for a property loan?
Before applying for a mortgage loan, you should select a property to buy and decide whether to apply by yourself or to apply to a mortgage broker or a conveyancer. After that it is essential to appraise your monthly revenues and expenses and also net profits to estimate what monthly redemption you will be able to pay, so what maximum term, the frequency of repayment and the loan size to choose. But even having done this, you cannot be sure that you will get an estate loan. Every Australian bank has requirements for getting a mortgage loan, particularly, you must suit the following criteria:
- be have 18 or be older
- to have a permanent location in Australia
- to have a particular sum as an initial advance
- to be a patrial or a permanent resident of Australia
- to have a job or to be an entrepreneur
- to have an appropriate credit rating
- to earn enough revenues
- to have no or low liabilities
- do not have missed payments on current credits, utility bills, and other invoices
Australian banks may require the following documents:
- Individual data
- your employment history
- information about the current and previous places of living
- confirmation of your revenues and current expenditures
- information about your assets, like a vehicle, bike, land, and others
- Labor data
- Current records of your salary
- The last tax return
- A letter from your hirer stating the tenure of your job placement
- Equity documents
- the project of the real estate sales agreement (or some pages from it)
- or the constraction documents, plans, and specifications
- Other documentation
- identification documents like passport, medical card, birth certificate, drivers license , etc. (100 points are necessary for approval)
- the latest credit card statements
- the bank statements for the last 6 months (sometimes, the last 3 years)
- for an investment estate, confirmation of rental revenue
- council rates notice for any properties you own, such as investment properties
- For entrepreneurs:
- two years tax returns
- two years tax assessment notices.
- two years financial statements and others
- For guarantors
- identification documents (on 100 points)
- information about the proposed as a pledge property
After you have filled the application and sent all the needed documents, the financial organization makes a solution to the property credit providing. That can take from several hours to a few days. If the resolution is positive, the bank usually sends the loan funds to the home seller, after that you can solve all legal nuances and move to the new house.
Step four. How to increase your chances to receive mortgage credit (for bad credit scores) and to get the cheapest interest rate?
Unfortunately, there is no guarantee that by providing the entire package of necessary documents, Australian banks will provide you with financing for the purchase of housing. At the same time, we will tell you what steps to take to increase your chances to the maximum.
- Establish a relationship with your future lender. You can open a day-to-day account at the financial organization, to which you are going to apply for the mortgage credit, a few months in advance. It may higher the possibilities to receive the credit. Also, you can transfer your salary or pension receipts to this account.
- Check your credit file before applying. It will help you to appraise your chances to get the loan. Maybe there are some mistakes in the credit data. So you will be able to fix this information in advance
- Make the maximum down payment you can afford. This will increase your chances of getting a loan, as well as reduce overpayment on the loan. Regarding the loan term, the lower it is, the less your banking expenses, but at the same time, it will be more difficult to get a loan.
- Consolidate and manage your liabilities. Multiple debts lessen your chances to get the credit, because potential creditors may consider your financing too risky. Think about their consolidation to one loan. Also if you have high credit limits and do not use them – think about their decline, as it also can decrease the banks' eagerness to provide you a mortgage
- Do not send multiple credit applications for mortgage credits at once. It can lessen your credit score and your chances to receive the financing.
- To enhance your credit score you should open a deposit and to replenish it periodically, at least 50-100 AUD per month. A good deposit history will show the bank that you have enough funds to repay the loan, as well as you are disciplined enough to regularly accumulate funds to pay off future mortgage liabilities
- Check your bank credit statements, for example, on credit cards. When applying for an estate loan, Australian banks often require such documents at least for the latest six months. Missed payments and refusals to increase credit limits will be negative news for potential lenders
- Be pedantic in credit redemption. Always pay bills on schedule or earlier, whether it is a utility invoice or a credit repayment at another financial organization.
- Prepare all the necessary documents for creditors. When providing information to the bank, do not think of its embellishment, the bank can easily verify this data.
- Banks like stability in your life. So, if you are going to change your job or to start your own business, you should postpone such a decision before you receive the financing.
- Use credit calculators to estimate the level of the future periodic repayments. If they are too high compared to your monthly net profit, you should delay the purchase and save up more money for the initial advance or choose the greater term of financing. It will be offensively to get a refusal just because of high credit expectations
- Consider additional payments. You must pay not only for bank’s interest and commission expenses but also additional costs, like insurance, building inspections, government duties and moving costs. So consider them and include into the purchase budget
- Establish automatic redemptions from your day-to-day or deposit accounts on your credits. So, your minimal periodic redemptions will never be missed.
- If you not get known the market – talk to a specialist. There are a lot of factors influencing the home price and your credit score. So, therefore, if you do not understand them - it is better to hire a mortgage broker.
- If your bank refuses to provide a mortgage loan or you want to no deposit home loan, bring a guarantor, for example, your parents
- If you live in Queensland you can get First Home Owners' Grant from $15,000 or $20,000 towards buying or building a new house, unit or townhouse
But, if our advice all the same did not assist you, and you got the refusal, do not despair. Postpone your purchase and try to improve your credit score and the chances to get a mortgage loan. For example, you can save more money for the initial advance or receive higher-paid work. Probably, you will be lucky next time.
The mortgage loan will help you make a dream purchase. But be careful when choosing a financial organization. The possibility of reducing rates by only 0.1% can decrease your costs by thousands of AUD. Study carefully all price and non-price parameters of a credit offer, like percentages rates, one-time commissions, servicing fee, discharge, and late payments fees, redraw commission, maximal period, credit size, repayment frequency, percentage rate kind, and other parameters. Be prepared to incur additional costs in the form of insurance fee, stamp duty, moving expenses, brokerage, building, and pest inspections expenses, FIRB fee.
Before applying for a home loan, choose a homey to purchase and decide whether to apply by yourself or to apply to a mortgage broker or a conveyancer. Appraise your monthly incomes, costs and also net profits to estimate the future loan parameters. Prepare all the necessary documents and take the offered steps to higher your chances of the loan approval to the maximum.