BUYING YOUR FIRST HOME Buying your first home can be overwhelming. With so much information available and so many banks offering different types of loans – where do you begin? How do you even start this process? How much can you borrow? What documents do you need? Should I choose a fixed loan or a variable loan? What does an offset account do? What is LMI? The list of questions are endless. This guide is designed to help prepare you to get a loan from a bank. As each individual’s financial situation is unique, there are certain questions that cannot be answered unless you speak to a qualified mortgage broker such as PBP. So, lets get started!
step 1
COMPLETING A FINANCIAL FACT FIND (OR PRELIMINARY ASSESSMENT)
Ok, so this is a pretty lengthy document and one you may look at and want to run in the opposite direction... BUT, it is totally necessary and is the basis that we prepare your proposal and plan of attack! The financial fact find collects all your personal information including your employment history, living arrangements, assets and liabilities. One thing that has become a focus with the banks over the past 12 months is living expenses. The banks want to see how you spend your income and this means not just looking at your monthly personal loan or car loan repayments, they are looking at your discretionary and non-discretionary items. This not only includes things such as gas and electricity, but includes after-pay, insurance, phone, Foxtel, gym membership, health cover, child care etc etc. They expect each applicant to give a full breakdown of itemised expenses including these items for each month. Most banks request to see your last 3 months transactional bank statements to verify your monthly expenditure. After you complete this financial fact find, we review this and can prepare for you a full proposal which includes: • Maximum borrowing capacity • Maximum purchase price • Minimum savings you need • Suitable loan types • Monthly repayments
So you now know how much you can borrow and afford, what your monthly repayments are and what loans you qualify for... what’s next?
step 2
Applying for a pre-approval. Preparation is the KEY to getting your pre-approval. Each bank has slightly different requirements, but here is a generic guide to get you started.
DOCUMENTS CHECKLIST 100 points ID
We need a minimum of 100 points of ID to identify you. A passport and Drivers licence are the best forms of ID – some banks require these to be certified.
Income
2 x payslips and your most recent PAYG statement. If you are self-employed, we need 2 years individual and company tax returns and financials with your last two years NOA.
Genuine Savings
Most banks want to see your savings history over a minimum 3 month period. You need to save at least 5% of the property purchase price in a bank account held in your name. Each bank has different requirements.
Transactional Bank Accounts
Most banks want to see 3 months of your bank statements showing your income deposits and monthly expenses.
Credit Cards
Most recent Credit Card statement dated within the last 6 weeks
Personal Loan
Most recent Personal Loan statement dated within the last 6 weeks
Car Loan
Most recent Car Loan statement dated within the last 6 weeks
Rental History
Some banks like to see a rental leger for the past 6 months confirming your timely payments of your monthly rent. This is important when borrowing over 80%. Some banks will also consider this as genuine savings.
From time to time, the bank may ask for more information or documentation in addition to our list above. We will communicate with you and the bank quickly so we can get your loan approved ASAP.
Now you are prepared and have all your documents together – let’s get your application to the bank!
step 3
LODGING TO THE BANK – THE WAITING GAME!
We complete your loan application documentation (along with comprehensive notes), you sign off on everything and we send this, along with your supporting documents to the bank to be assessed! Normally we have an answer back within a few days. Depending on the lender and your particular scenario, it may take over a week.
Pre-approved! How do I buy a property?
step 5
step 4
Now the fun begins! You know exactly how much you can spend, you are prepared and have your pre-approval ready to go. Happy house hunting!
YOU’VE FOUND “THE ONE”. WELL, CONGRATULATIONS! YOU. DID. IT. WHAT HAPPENS NEXT?
Once you have signed the contract of sale, send it to us! You are in good hands. We do this every day and will guide you through to settlement. Now is the time to appoint a conveyancer or solicitor. We can always recommend one for you to use if you haven’t already got one. We send your contract of sale to the bank and order your valuation. If your original documents are dated later than 6 weeks, you may need to get us some updated information and depending if your purchase price varies from the pre-approval, we may need to adjust your loan amount. The valuation usually takes around 4 days to complete and the final assessment with the bank also takes this amount of time. We can generally get a formal approval within 4 – 5 business days.
Formally approved, do I need to do anything else?
step 6
TIME TO SIGN DOCUMENTS!
step 7
PENDING SETTLEMENT
You’re nearly there! The bank will send you mortgage documents which you need to read and sign. They must be witnessed by anyone over the age of 18 and NOT a family member. Send them back to the bank as soon as you can.
The bank will speak directly to your conveyancer and arrange settlement. You need to make sure you have signed all the legal paperwork with your conveyancer and you have the remaining funds ready for settlement in your nominated bank account (or solicitors trust account). Most settlements are done electronically on a platform called PEXA. On the actual day of settlement, all you need to do is pick up your keys!
Be informed. Here are some common questions we get asked. WHAT IS THE MINIMUM DEPOSIT I NEED? Some lenders will allow you to borrow up to 95% of the property value. They may also add an extra 2% to help cover part of the lenders mortgage insurance (LMI). This is called capitalisation. This means you can get a 95% loan and then add part of the cost of the LMI to the loan. For example: In order to purchase a home of $400,000, you could access a 95% loan of $380,000, meaning you’ll need to provide a cash deposit of $20,000. However, you can add part of the cost of LMI to the loan amount (up to $8,000), which brings the total loan up to $388,000 or 97%. You will still need to contribute extra savings for any government fee’s and the remaining 2% of LMI.
WHAT DOES LVR STAND FOR? LVR stands for LOAN TO VALUE RATIO. The Loan to Value ratio (LVR) is the amount of your loan compared to the value of your property. LVR is calculated by dividing the amount of the loan by the value of the property. For example, if the property is worth $400,000 and your loan is $320,000, the LVR will be 80%.
WHAT IS LENDERS MORTGAGE INSURANCE (LMI)? LMI is a once off insurance premium that is payable when you borrow over 80% of the value of the property. The cost can range from 1 %– 4.5% of the loan amount (ouch!). The higher the LVR, the higher the LMI cost. LMI protects the bank if you default on your loan. It does not protect you as the borrower.
WHAT IS GENUINE SAVINGS AND WHAT BANK STATEMENTS DO I NEED TO SHOW? To demonstrate your genuine savings, the bank wants to see your money in a bank account in your own name building UP over a minimum of 3 months. This must be a minimum of 5% of the purchase price of the property. To confirm your income and expenses, the bank will want to see 3 months of your transactional/everyday bank account statements. Again, this account must be in your name.
WHAT IS A CREDIT REPORT? Your credit report holds information relating to your credit history. If you’ve ever applied for credit or a loan it is likely you will have credit information held by a credit reporting body like Equifax. Credit can come in many forms. Along with credit cards, personal loans and mortgages, credit also includes mobile phone, electricity and gas contracts as well as store and rental finance. Your credit report can help lenders, phone and utility companies get a clearer picture of your credit worthiness. It helps them understand your current credit commitments and how likely you are to be able to make repayments on future loans. All lenders will perform a ‘credit check’ on you when they are assessing your loan.
HOW DO I PAY THE DEPOSIT FOR MY PROPERTY? Normally you would pay your 10% deposit from your own savings. If you have less then 10% in savings you would need to negotiate a smaller deposit prior to signing the contract of sale. The real estate agent would need to seek approval from the vendor.
WHAT IS THE FHSS? The First home super saver (FHSS) scheme was introduced by the Australian Government in the Federal Budget 2017–18. The FHSS scheme allows you to save money for your first home inside your superannuation fund. This will help you as a first home buyers to save faster with the concessional tax treatment of super. From 1 July 2017, you can make voluntary concessional (before-tax) and nonconcessional (after-tax) contributions into your super fund to save for your first home. From 1 July 2018, you can then apply to release your voluntary contributions, along with associated earnings, to help you purchase your first home. You must meet the eligibility requirements to apply for the release of these amounts. You can apply to have a maximum of $15,000 of your voluntary contributions from any one financial year included in your eligible contributions to be released under the FHSS scheme, up to a total of $30,000 contributions across all years. You will also receive an amount of earnings that relate to those contributions. For more detailed information, please visit https://www.ato.gov.au/Individuals/Super/Super-housing-measures/First-Home-Super-Saver-Scheme/
WHEN DOES THE LOAN START? The loan is drawn down and ‘starts’ on settlement day, so you don’t need to pay your monthly mortgage repayment until one month after settlement.
WHEN DO I NEED TO GET A CONVEYANCER OR SOLICITOR? Before you sign a contract of sale, you should always make sure you get a conveyancer or solicitor to review the contract. They can advise on any encumbrances or restrictions on the title.
HOW LONG DOES THE PRE-APPROVAL LAST FOR? Generally a pre-approval lasts for 3 months. Some lenders offer a pre-approval for 6 months.
WHAT HAPPENS IF I DON’T FIND A PROPERTY AND MY PRE-APPROVAL EXPIRES? If your pre-approval has expired, that’s totally ok! We can go back to the same bank, give them updated documents and re-sign a statement to confirm your financial situation has not changed. If the bank has withdrawn your loan as it has been a longer period of time, we may need to re-apply.
HOW MUCH DOES A PRE-APPROVAL COST? Nothing, but gives you EVERYTHING!!! Peace of mind and total confidence to buy your first home.
WHAT IF A BETTER DEAL COMES OUT WITH ANOTHER BANK, AM I LOCKED IN? NO! We can always lodge your loan with another bank if there is a better offer released in the market. We have done this for many customers over the years. It’s our job to get you the best deal!
DOES PBP CHARGE ANY FEES? NO – we are paid a commission by the bank which is fully disclosed upfront in a document called ‘Credit Quote and Proposal’.
HOW DOES THE FIRST HOME OWNERS GRANT (FHOG) WORK? Each state is different and it is always good to research the most up-to-date information on the state revenue office website for the state you are buying in. It is important that you advise your conveyancer and the GBF team if you are applying for a grant or qualify for a concession in stamp duty.
STATE REVENUE OFFICE WEBSITES: Below is the list of state based revenue offices. These websites can give you the most current and up-to-date information on the first home buyer rebates, concessions or grants. Always check here to see what you qualify for. www.sro.vic.gov.au www.revenue.nsw.gov.au www.sro.tas.gov.au www.treasury.qld.gov.au/taxes-and-royalties/ www.finance.wa.gov.au/cms/State_Revenue www.treasury.nt.gov.au/dtf/revenue
We are sure you will have more questions along the way. PBP has a wealth of experience and knowledge, spanning nearly two decades and helping over 3,000 clients secure their home loans. We’ve got your back and are ready to help you buy your first home!!! Disclaimer: The information provided in PBP guide to buying your first home is used for general education purposes only and does not constitute specialist advice. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Credit representatives Number 492286 is authorised under Australian Credit Licence 389328.
Phone 0418 363 673 • Email katherine@propertybeforeprada.com
www.propertybeforeprada.com Taggan Group Pty Ltd T/A Property Before Prada Australian Credit Licence Number 389328
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