Getting A Home Loan - Know All

Getting a Home Loan – Know All

home loan

In Melbourne, just like in any other place in Australia (or in most parts of the world), a home loan is actually a secured loan. This loan is used to purchase a property by offering it as a collateral.

Home loan Melbourne typically offer high-value funding at economical interest rates and for long tenors (length of time) and are repaid through EMIs. After repayment, the property’s title is then transferred back to the borrower.

Loan / mortgage / property

A home loan is one means of buying a home when you don’t have the money yourself. On the other hand, a mortgage is one means of guaranteeing a loan and protecting the lender from non-payment.

The main purpose of a housing finance is to empower you to own your dream home. As a practical reality, a home actually provides a long-term security.

Since it is also a real estate property, it does appreciate in time. In another context, a real estate is a solid investment that will give you good returns in the future.

The lender is a financial institution that loans you money to buy a home. Your lender might be a bank or credit union, or it might be an online institution.

Loan advantage

Experts believe that even if you have the money to buy the property in one go, it is considered better that you take a home loan. It is deemed better that you do not spend a lump sum of money on the property.

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Instead, it is better to go for a large amount of down payment and pay off the remaining higher amount, in monthly EMIs, since you can afford it.

Deposit for loan

There is a required amount of deposit when you ask for a loan in Melbourne. Typically, the minimum required deposit is 10%. If it is possible, aim for 20%.

If you are borrowing more than 80% of the value of the property, you need take

out Lender’s Mortgage Insurance or Low Deposit Premium. There are other upfront costs outside of the deposit (legal fees, stamp duty, moving costs and insurances).

More lending ceiling, lesser deposit

Some lenders understand this and will let you borrow more than 80% of the property’s value. Some even will lend you as much as 95%. (This means your deposit will be only 5%, plus the associated purchase costs.)

An example on this means that if the property you want costs $400,000, 5% of that would only amount to a $20,000 deposit, which can be done.

Ideal deposit

The 20% deposit is ideal because you won’t have to pay lender’s mortgage insurance.

Set up a savings account or term deposit or use the First Home Super Saver Scheme for up to $30,000 of savings.

Many banks and other lending institutions are willing to lend up to 95% of the property purchase price. Many banks and non-bank lenders are willing to lend up to 95% of the property purchase price.

This means you will need to save at least 5% of the purchase price to put towards your deposit. So, if you’re buying a home valued at $400,000 then 5% of the purchase price is $20,000.

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Interest rates

Interest rates in 2023 in Australia for the average owner-occupier who pays variable rates could reach up to 6.86% (This was on the first half of 2023.)

In April, the four major banks have forecast that there is another 25 basis points hike to the cash rate. (However, Westpac believes that there will be a pause in the hike in April before a hike in May.)

100% mortgage

In Australia, the average income is between $55,000 and 85,000. If you want to secure a $400,000 home loan to buy a house, most lenders will require you to make somewhere between $55,000 and $85,000.

If you want to secure a $400,000 home loan in buying a house, most lenders will require you to make somewhere between $66,000 and $100,000 per year.

This amount, however, will depend on what factor your lender multiplies your salary by.

Buying without savings

In another case, you will not have to repay a mortgage company the principal and

interest if you buy without a mortgage.But you may still owe interest to another party unless you pay for your home in all cash.

A home mortgage is a mortgage loan that is used to buy a house. The house acts as collateral for the loan. If the buyer defaults on the loan, the lender can acquire the house.

Ideal deposit

The 20% deposit is ideal as you won’t have to pay lender’s mortgage insurance. Set up a savings account or term deposit or use the First Home Super Saver Scheme for up to $30,000 of savings.

You can get your 100% LVR home loan (even a 110% LVR home loan) in Australia. However, you will generally need a guarantor on the mortgage. It is not possible to get such a high amount because the risk is too high for both the borrower and the lender.

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 No deposit

Buying a house in Australia without a home loan deposit is not exactly a set rule. One can still be approved for a loan of 100% of the purchase price of a home through some lenders.

The one requisite is that you need to meet certain conditions, including having a guarantor on the loan. This condition is usually determined on a case to case basis by the lender.

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Loan application factors

There are certain factors that are considered important in a home loan application.

The first and foremost consideration is your income.

Your income has the potential of greatly affecting the outcome on much money a home lender is willing to offer you. 

The next ones are just as important because any negative inputs can affect your

credibility. They could be some spotty records in your employment history, low savings, your spending habits, your credit score, assets and liabilities, including your rental income, if ever.

There will also be a need to present some documents to have your home loan pre-approved. You would need to present proof of income (pay slips, tax returns), plus bank statements and proof of your savings.

You would also need a list of your current assets and liabilities (e.g. credit card and personal loan debt) and ID papers like driver’s license, passport, Medicare card, etc.

Shivjot rai