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Five things you need to know about structuring a home loan

Five things you need to know about structuring a home loan

It can be a bit overwhelming to work out what the bank might lend you when you’re applying for a home loan. Even if you’ve got an idea of your potential borrowing power, should you take the full amount the bank is prepared to give you? And, how does this impact your monthly mortgage repayments?

Run the numbers

An online mortgage calculator is a good place to start when you’re trying to understand how the numbers stack up. There are calculators to help you work out your borrowing capacitymortgage repaymentsstamp duty and equity. Begin by getting an idea of what the bank might give you based on your circumstances.

Plug in the number of people applying for the loan, the number of dependants, your income, monthly expenses and any credit card debt. You’ll also need to choose whether it’s your home or an investment, as well as whether you’re a first home buyer. When the calculator provides a potential monthly mortgage repayment figure, you can decide whether that will be a reasonable ongoing cost.

The lender will consider a number of factors to establish your feasibility. This includes your age, your salary, whether you’re employed full-time or self-employed. Banks are also taking a close look at people’s monthly expenses and ongoing costs. When a lender reviews your bank statements, they will want to see that you’re good at managing a budget. So, it’s a great idea to get into good spending habits well before you apply.

If you’re planning to buy an investment, they’ll also factor in things like council rates and the cost of a real estate agent managing your property – that could be anywhere between 5 and 10% of your monthly rental income, depending on location and your chosen agent.

Do the location and type of property matter?

Absolutely. An apartment in an area that’s full of high rises might be a riskier purchase than an apartment where there’s more demand. It can be harder to get a loan in a suburb where there’s an oversupply, so do your research. Consider suburbs where there aren’t too many developments or rental vacancies. In suburbs that are deemed risky, you might be required to supply a deposit of more than 20%.             

Some regional locations might also require a bigger deposit if banks deem them unpredictable. But that’s not the case across the board. In parts of regional Victoria and NSW where growth is strong, banks might be more comfortable with lending more. But if you’re looking at buying a shack in a remote location, you might struggle to get the funds.

Factor first homebuyer benefits into your budget

Depending on where you’re looking, the first homebuyer concessions can be significant. They vary from state to state and they change frequently. Currently, in Victoria, it’s $10,000 when you buy or build a new home worth up to $750,000. In some places, like regional Victoria, it’s more: $20,000 if you’re prepared to get out of town.

In Sydney, they’re now offering a stamp-duty exemption on new homes worth up to $650,000 and land that costs up to $350,000. There’s also a concession for existing properties worth between $650,000 and $800,000 and land valued between $350,000 and $450,000. Just don’t let benefits dictate what you want to buy. There’s no point in getting a $20,000 boost for a regional property if you don’t want to live there.

Save on stamp duty

Stamp duty is still a massive hurdle for first home buyers in some states. In Adelaide, for example, there are no stamp duty exemptions, but some buyers might be eligible for off-the-plan concessions. In Tasmania, there are no stamp duty exemptions but, from July 2019, the first-homebuyers grant is $10,000. To check out the stamp duty requirements in your location, visit your state government website.

Calculate your total costs

Once you know what the bank might give you based on your circumstances and what you stand to save through concessions, you’ll be better placed to estimate your loan amount, out of pocket expenses and monthly mortgage repayments. With all of the numbers stacked up, you can work out what’s feasible and whether you’re ready to apply for pre-approval.

Find out more about planning to apply for a home loan in Nicole Haddow’s Smashed Avocado: How I cracked the property market and you can too, out now. 

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