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 your research may seem quite confusing - 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.
Know your rights
Before you get started shopping around for a home load it's important that you know your rights. Having as much information as possible about what's involved in taking out a home loan. MoneySmart's Home loans page (new window) is a good place to get started.
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 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 (new window). 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.
MoneySmart's Home loans page (new window) has a buying guide that offers advice on finance. It also has information on different types of loans and how to compare rates between different banks and other lending institutions.
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.
The Mortgage and Finance Association of Australia (new window) can help you make sense of the terms used by banks, real estate agents and lawyers. You can also locate an accredited broker in your area and calculate costs using their online tools. You might find their checklists for first homebuyers 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, MoneySmart's Saving pages (new window) have some great tips for making your money go further and developing 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.
Your Mortgage (new window) is one website that offers loan guides and calculators that can help you compare the costs of different lending options. There are others out there as well - do a search online to see what you can find.
If you still have some questions about mortgages and saving, the Money Manager website has an "Ask an Expert" form that you can access on their homepage (new window - scroll down to the "Ask an Expert" icon) to submit your questions. They also have other good information, like buyer's 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.
Check out MoneySmart's Home loans page (new window), for some information about the issues to consider before signing any contracts or agreements.
MoneySmart - Home loans
An overview of things to consider before you take out a home loan.
Mortgage and Finance Association of Australia
Find a mortgage broker, check out some first homebuyers checklists, calculate costs and use the glossary to make sense of the terms used by banks, real estate agents and lawyers.
Visit this site for loan guides and loan calculators to compare the different home loan options you have.