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Buying property is considered part of the Great Australian
Dream and building a solid portfolio of property has been
a long-favoured investment strategy for many people.
For those of you just starting out on your property ownership
journey, there’s the deliberation over what area and what type
of structure to buy, the excitement of property hunting, the
confusion over grants, inspections and red tape. Something
else that’s crucial for first homebuyers to consider is the type of
lender and type of loan structure that will be right for you.
Here we look at five important considerations for first
homebuyers when choosing a lender.
¿ WHAT IS YOUR DEPOSIT SITUATION?
For first homebuyers, saving a healthy deposit is generally the
most challenging hurdle to entering the property market. While
those already in the market will often be able to use equity
within their existing portfolio to support an additional home
loan, the typical first homebuyer must rely on cash savings.
The amount of deposit required to be successful in a loan
application can vary from lender to lender. While some lenders
will be willing to approve a high loan-to-valuation loan, others
may require a minimum 20 per cent deposit. The source of the
deposit can also affect a lender’s willingness to approve a loan.
Some examples of deposit sources that may be acceptable to
some lenders but not to others include cash gifts from family, the
First Home Owner Grant and guarantor agreements. As a first
homebuyer, you must ask a prospective lender what the deposit
requirements will be before applying for a loan.
¿ DO YOU NEED A PRE-APPROVAL?
Many houses are sold at auction and a distinguishing feature
of auctions is that sales are legally binding. That means that if
you’re seriously contemplating the purchase of a property that’s
going to auction, you’ll need to organise and have completed a
pest inspection, building inspection and independent property
valuation before the auction date. There’s also no “subject to
finance” clause in an auction contract of sale, so if bidding at
auction is a possibility, you’ll require a home loan pre-approval.
While they’re certainly a common service, not all lenders are
willing to provide home loan pre-approvals, so this is another
important question for you to pose when looking for a lender.
Whatever you do, don’t bid at auction without having your
finance guaranteed beforehand.
¿ HOW IMPORTANT IS FACE-TO-FACE SERVICE?
We buy groceries, fashion, homewares, media and more online
these days. We also buy financial products online.
While home loans can be applied for and purchased online, as
a first homebuyer you should ask yourself whether you perhaps
need a level of face-to-face service.
There are many different loan structures and many different
optional features to consider and while experienced investors
may be able to easily navigate the many variables online, first
homebuyers may find it easier to talk through the process with
a real person. Not all financial institutions provide a physical
bank branch and this is something you should weigh up when
choosing your provider.
¿ WHAT LOAN STRUCTURE WILL BE APPROPRIATE?
Basic variable loans, basic fixed-interest loans over one, three
or five-year terms, package loans, offset accounts and/or redraw
facilities, principal and interest, line of credit, split loans...
there’s really no such thing as a “plain vanilla” loan.
As an indication, CANSTAR’s home loan star ratings assess
about 1800 loans across more than 100 lenders. Additionally,
the package banking star ratings assess 31 home loan packages
offered by 28 lenders. It’s a large and complex marketplace!
Not all lenders offer all types of loan structures, so the type of
One thing a financial institution will certainly check when they
receive your home loan application is your credit rating. As such,
it’s a good idea for you to check it first.
Your credit rating can be obtained free of charge from either Dun
and Bradstreet (www.checkyourcredit.com.au) or from Veda (www.
mycreditfile.com.au). To obtain a free copy, it’s best to allow a
timeframe of two weeks.
Changes to the Privacy Act, passed by Parliament in 2012 and
effective from March 2013, mean the following information is
typically included on your credit file:
> Your personal details, including name, address, date of birth
and current employment situation.
> Any directorship or other business ownership details.
> Any credit applications you’ve made in the past five years and
any credit accounts you currently hold, including when the
account was opened/closed and the credit limit.
> Overdue accounts where the credit provider hasn’t been
able to locate you to request payment. These are termed
“clearouts” and will remain on your file for seven years.
> Number of other credit enquiries made on your account, by
whom and when.
> Repayment history information for any consumer credit
payments that you fail to make on time to a credit provider
that holds an Australian Credit License. This will usually relate
to loans. Forgetting to make payment on time or making only
a part-payment will be recorded as missing a payment. The
information includes the day on which a payment was due and
the date on which you paid. The information will be kept on
your file for two years.
> Any bankruptcy or court judgements.
Check your credit rating!
How to choose
FINANCE // MITCHELL WATSON
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