Now you understand what makes up a home loan, you need to ensure you’re searching in the right place for your ideal home loan.
Not all loans are created equally, and different loans will have varying eligibility criteria, interest rates and ongoing costs based on your borrowing type and loan purpose. These include:
A first home buyer is looking for their first home loan to help them achieve the Great Australian Dream of getting a foot on the property ladder. Whether you’ll be living in the property or planning on renting it out, being a first home buyer will impact your mortgage search.
Firstly, you may not have saved up a 20 per cent deposit for your loan, as property prices in capital cities (particularly Sydney and Melbourne) are sky high. A smaller deposit may be enough to get the loan, but it may see your lender charge you a higher interest rate. Plus, you’ll have to pay LMI for the loan, which can creep into the tens of thousands of dollars.
Secondly, younger first home buyers may not have as established credit history and excellent credit scores. Your credit history plays a large role in not only the approval of your home loan, but the interest rate you may be offered. Australians with excellent credit scores are seen as more ‘reliable’ borrowers and less likely to default on their loans. The less risk you pose to a lender, the more competitive your interest rate may be.
However, first home buyers are also offered government support to help them get on the property ladder. Depending on the value of the property, you may be eligible for stamp duty exemptions or concessions. You may also be eligible for a first home owner grant. The details of this support will vary based on the state or territory you’re purchasing property in.
As mentioned above, if you’re looking for an investment loan so you can rent out a property, you may face higher ongoing costs on your loan. This is because lenders view property investors as having a greater risk of defaulting on the mortgage, as there is less incentive to pay your bills when you don’t live in the property that you’re paying off. By charging a higher interest rate, lenders are ensuring they’re getting something back from an investor, in the event they default on the loan.
Your loan application may be viewed with greater scrutiny by the lender because of this. You may need to save a larger deposit, or show your reliability in other ways, such as having a large amount of savings or having no outstanding debts.
If you’ve already purchased one or more properties and are looking to refinance your home loan, this will also impact your home loan search.
Whether you’re looking for a lower rate, fewer fees, or a loan with greater features, refinancing your home loan may help you to reduce your ongoing costs and create more flexibility in your mortgage.
If you’ve already paid off a significant chunk of your home loan, you will have built up some equity over the years. This is your leverage tool that may be able to help you nab a lower rate. Lenders may offer more competitive interest rates to borrowers with lower LVRs.
Comparing your options is invaluable for refinancers, so ensure you do your research and use comparison tables and calculators to nab the best new home loan for your financial needs.
If you’re a small business owner or sole trader, you may find the home loan application process tends to be geared towards full-time employed Australians. Having a full-time job for more than 12 months looks favourable on an application, plus a lot of paperwork calls for employer and income details.
In the 1990s, mortgage brokers realised not all lenders fit into the one mortgage applicant category. This spurred the creation of ‘low-doc home loans’ for these viable borrowers. As the name suggests, a low doc loan is aimed towards Australians with low documentation – aka those who are self-employed and have the deposit for a loan but lack the standard documentation to prove they can maintain repayments.
While you will be offered typically the same rates, fees and features as a standard home loan, you’ll need to ensure you’re boosting your application with the right documentation. This may include:
- Proof of identification
- Proof of working in same industry for 12 months
- Registered business name and ABN
- 12 months of Business Activity Statements (BAS)
- Proof of registration for GST
- Personal and business bank statements
- Income declaration from your accountant.
