Summary
The primary purpose of our meeting was to explore options giving due regard to your present position. It should be noted that any recommendations provided through this email should be supported by your own investigations. Additionally, any taxation matters should be supported by independent professional advice.
The following points have been noted in determining some recommendations for you:
Most lenders "price to risk" and their interest rates, terms, and conditions as well as Lenders Mortgage Insurance cost imposts will depend essentially on the amount borrowed and the loan to value ratio (LVR). I will therefore try not to overly complicate the email and strategy options for you but please keep these points in mind in terms of making any immediate product comparisons.
The objective will be to retain either individual loan to value ratios or an overall loan to value ratio to 95% or under to meet lender policy restrictions on total LVR. The higher that LVR the higher the Lenders Mortgage Insurance impost increases substantially. This structure will mean that Lenders Mortgage Insurance (LMI) will be applicable at an approximate level based on purchase price.
The approach is not so much about how much the bank will lend you but moreover a combination of what is affordable versus a loan structure that assists in saving you money and maintaining a reasonable loan to value ratio to obtain the most competitive rate available to you.
There has been increased focus on applicant living expenses, loan affordability, and providing sufficient evidence to support information contained within loan applications. It may be therefore necessary to gather additional information that may have not been sought before or provide specific additional document requirements. Please note this will now be the new norm and consistent across all lenders.
Increase in property value: If the market experiences growth, the property you purchase today may increase in value throughout your ownership. Having a reasonable land size provides good potential for capital growth.
Stamp duty savings in some states: State governments offer bonuses and reductions in stamp duty for buying established homes, which can save you thousands of dollars.
Ready to move in: Unlike purchasing a home "off the plan," once you settle, you can move in right away.
Lock in a price: One of the advantages is paying the current market price for a property that will be completed in the future.
Securing a high-value asset for a low initial capital outlay: A deposit (usually 5%–10%) secures the property, while the full payment is deferred until completion.
Tax advantages: Investment buyers may claim depreciation on fixtures and fittings. Consult your accountant for eligibility.
Falling property market: If the market falls before completion, you may overpay and face challenges securing full finance.
First registered mortgage: The lender must hold the first registered mortgage over the completed property before funds are released.
Owner's equity used first: Loan contracts must specify that the borrower's own equity is applied before lender funds are drawn for initial progress payments.
Approved building contracts: Building contracts must be HIA or MBA approved and executed in the borrower's name prior to loan approval.
Progress payment schedule: Lenders require use of an industry-standard schedule, typically comprising five drawdowns with a maximum of six considered.
Fixed time limit clause: The building contract must include a fixed completion timeframe, not exceeding 12 months from the date of loan approval.
Buying private treaty provides a 2-week cooling-off period to pull out of the purchase without any loss of deposit to you. You can negotiate the offer with the agent until an acceptable offer is made.
If you cannot obtain the unconditional approval in that time, or if the valuation comes in lower than expected, you have time to either renegotiate or pull out of the purchase.
The only difference between this and a normal auction is that you make your offer prior to the day of auction. If this offer is accepted, you must exchange and pay your deposit the day your offer is accepted.
In short, if a property is advertised as going to auction and you have your offer accepted prior, you are subject to the auction conditions.
When buying at auction, you do not have that 2-week period to pull out of the purchase should there be valuation concerns or you are unable to obtain your unconditional approval.
If you are the successful bidder at auction, you will exchange contracts on the day and pay your required deposit amount. You must have the valuation completed and meet all bank conditions within the agreed settlement period (standard is 45 days).
The right home loan option for you will depend on your current financial situation. A summary of these options is as follows:
Will suit most borrowers as it provides more flexibility. If you are an owner-occupied borrower, principal and interest repayments could suit you as you start reducing the balance at the start.
Set interest rate for a nominated term (usually 1–5 years). You benefit by knowing exactly what your repayments will be for this set period.
For borrowers who are building a new home. Paid in stages (progress payments) to the builder. Once construction is complete, the loan reverts to the standard variable.
An offset account is a feature of some mortgages. It is a savings account attached to the mortgage, with the balance used to offset the interest charged on your loan.
With this loan, you don't have to make repayments unless the line of credit is fully drawn. Interest is calculated on the daily loan balance.
Home loan fees and charges can vary significantly from lender to lender. To help you assess your budget, we have listed definitions of a few of the fees and costs you will need to consider.
Also called an establishment fee, an application fee is charged by the lender to cover the initial costs of processing your home loan application.
If you are borrowing more than 80% of the value of your property, you will need to consider the cost of LMI. Although paid for by the borrower, LMI protects the lender if the borrower is unable to repay the loan.
A valuation is an assessment on the market value of a property at any given time. Lenders may order a valuation on the property you intend to purchase.
As part of purchasing property, you may be liable for several government and statutory charges, including transfer stamp duty, mortgage stamp duty and mortgage registration fees.
Legal fees relate to the legal processing of your property purchase by a qualified conveyancer or solicitor.
During the property settlement process, certain costs such as council rates, strata levies, or water usage charges are adjusted so that each party only pays for their period of ownership.
The following definitions are provided as a reference guide to terminology commonly used throughout the residential property purchasing and mortgage broking process.