Useful tips for finding the right home loan for your needs
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There is no doubt that buying a home is one of the most important decisions a person can make in their lifetime. It’s also a decision that can be fraught with difficulty, especially if you don’t know where to start.
That’s why it’s so important to arm yourself with as much information as possible before you even begin looking at homes so let’s look at the six tips to help you get the best home loan for your needs.
Know your credit score
Your credit score is one of the most important factors in determining what kind of loan you will be able to qualify for, so before you start looking at homes, make sure you obtain a copy of your credit report and score so you know where you stand.
Additionally, Australia has several different credit reporting bureaus so it’s important to obtain your report from all of them, not just one. This will give you the most accurate picture of your creditworthiness or measure for affordable housing in Australia. If you need help interpreting your credit report, there are several free services available that can assist you.
Save for a down payment
One of the biggest hurdles to buying a home is coming up with a down payment but, unfortunately, it’s also one of the most important factors in getting approved for a loan. In Australia, the minimum down payment is usually 5% but, if you can afford to put down more, it will improve your chances of getting approved for a loan as well as get you a better interest rate.
For instance, if you have a down payment of 20%, you will not only avoid having to pay for mortgage insurance but you will also qualify for a lower interest rate.
On the other hand, if you can only afford a 5% down payment, you will likely have to pay for mortgage insurance, which is an additional cost that will be added to your loan.
Research your options
There are several different lenders in Australia and each one offers a different suite of products so it’s important to do your research and find the one that best suits your needs.
For example, some lenders only offer variable rate loans while others may offer both variable and fixed rate options. Additionally, some lenders will require you to have a 20% down payment while others may only require 5%. It’s also important to compare their interest rates as they can vary significantly from one lender to the next.
The best way to research your lending options is to use an online comparison tool like RateCity which will allow you to compare a range of different lenders side-by-side.
Get pre-approved
Once you have an idea of what kind of loan you want, it’s a good idea to get pre-approved so you know exactly how much money you have to work with when you start looking at homes.
Pre-approval is different from pre-qualification as it gives you a more accurate picture of what you can afford as the lender will take a closer look at your financial situation.
To get pre-approved, you will need to provide the lender with several documents including your tax returns, pay stubs, and bank statements.
Once you have been pre-approved, you will be given a letter that you can use to show sellers that you are a serious buyer.
Know your loan options
There are several different loan options available in Australia and each one has its own set of pros and cons so it’s important to know what they are before you make a decision.
Variable-rate loans
These are the most popular type of home loan in Australia as they offer several benefits including the ability to make extra repayments and redraw those funds if you need to. However, because they are based on the current market conditions, your interest rate can fluctuate which means your monthly repayments could go up or down.
Fixed-rate loans
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These are another popular option as they offer stability and peace of mind as your interest rate will be locked in for the life of the loan. This means your monthly repayments will stay the same regardless of what happens to interest rates. However, because you are locking in your rate, you may miss out on lower rates if the market conditions change.
Interest-only loans
Finally, interest-only loans are typically used by investors as they allow you to make smaller repayments for a set period, usually 5 years. This can free up cash flow which can be used to invest in other properties. However, at the end of the interest-only period, you will need to start making principal and interest repayments which could be a significant increase.
When it comes time to buy a home, most people will need to take out a loan to afford the mortgage. This can be a daunting process, but by following these six simple tips, you can make it easier on yourself. By researching your options, getting pre-approved, and knowing your loan options, you can find the best home loan for your needs and save money in the long run.
