Home loans
Buying a home is probably the largest financial commitment you'll ever make.
If it's your first home, figuring out how to save a deposit and negotiate a mortgage can seem overwhelming with so many options around, but it is important to shop around, do some research and gather your facts. Don't just accept the first deal offered by a bank or other lender.
Sometimes doing you research may seem quite confusing - but be persistent and ask questions! Researching can be a pain, but it is an essential part of ensuring that you get the best deal that suits your particular needs.
What's a mortgage?
A mortgage is an agreement, or contract in writing, that provides security to a lender by giving them particular rights. For example, a lender may have the right to repossess a property if the borrower or 'mortgagor' fails to repay the loan under the agreed conditions.
Who lends the money?
Traditionally, money has been lent by institutions such as banks, building societies and credit unions. Each lender will have their own names for the different loans or accounts on offer. Ask about what they have tailored for students, young people or first homeowners.
Often there's an account structure that will let you combine your savings with mortgage repayments, sometimes called a 'mortgage interest' account.
Each mortgage agreement will have a set of fees that are fixed and an interest rate on the money loaned, which may be fixed or change according to a central rate set by the Reserve Bank (external link). Make sure that you understand all the charges that will be part of your agreement, and if you don't understand any part of the document, ask for advice.
Consumer Affairs Victoria provides a buying guide (PDF, 670kb) with advice on finance. They also have information on different types of loans and how to compare rates between different banks and other lending institutions.
The Real Estate Institute of Australia gives you some indicative prices (external link) of the costs associated with purchasing a property, including links to the relevant government areas for more detailed information.
Mortgage brokers
A 'mortgage broker' is a company or person that will suggest a lender and a loan after assessing your financial situation.
Mortgage brokers can save you the hard work of going from lending institution to lending institution to find out what kind of home loan options are available and best suit your needs.
Be aware however, that some brokers have hidden fees or may only deal with a small set of lenders. Make sure you do your research and have a list of questions for your broker.
Mortgage Industry Association (external link) can help you make sense of the terms used by banks, real estate agents and lawyers using the A-Z list of definitions. You can also locate an accredited broker in your area and calculate costs using their online tools. You might find their checklists for first home buyers really helpful.
Saving a deposit
The biggest hurdle for you may be saving enough money for a deposit for the loan, usually around ten percent of the cost of the property. The more money you have saved before you buy, the less you may have to borrow.
If you want to start saving, the FIDO (external link) site has some great tips to help your money go further and to develop a plan for accumulating your savings. The Source (external link) also provides a variety of tips for savings and a guide to help you to manage your budget and finances.
Take a look at our 'budgeting' and 'planning for the future' pages for more information on setting up your own budget and making a savings plan.
How do I make my choice?
Research is a vital step before you make an informed decision. There are so many variables to consider including changes to your future income, changing interest rates and the cycles of the property market and the economy.
There are a number of websites and publications that provide regularly updated news on interest rates, fees and ways to reduce the cost of a loan.
Visit YourMortgage.com.au (external link) and check out their loan guide and calculators as these will help you compare the costs of different lending options.
If you still have some questions about mortgages and saving, the Money Manager (external link) site has an 'Ask an Expert' section where you can submit your questions online. They also have heaps of other good information in the form of guides and fact sheets.
Putting in a mortgage application
Before you begin, make a checklist of all the documents you will need to include in your application and start getting them together as soon as possible.
You can apply for a loan well before you purchase a property, but you will need to have a realistic idea of what you can afford, and this means knowing your budget, your income and your assets.
Consumer Affairs Victoria provides you with some great information about applying for a loan (external link). They give you a quick overview of the paperwork you may need to prepare for your loan application and they detail the issues to consider before signing any contracts or agreements.
Links
Consumer Affairs Victoria
This site is an excellent source of advice. Check out their buying guide (PDF, 670KB) and their information for applying for a loan.
Real Estate Institute of Australia
This site contains indicative costs of housing prices with a state-state-by-state.
Mortgage Industry Association
Lots of great information here for first home buyers.
YourMortgage.com.au
Visit this site for loan guides and loan calculators to compare the different home loan options you have.
