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How do I improve my chances of a Home Loan application being approved?
1. Savings History
If your a first home buyer, saving for your deposit can go along way to demonstrate your genuine ability to meet your mortgage repayments. Your savings will need to make up at least 5% of the property purchase price. Saving for a larger deposit may reduce or eliminate fees like Lenders Mortgage Insurance and the potential to negotiate a more competitive interest rate.
2. Manage your debit
If you purchase items on zero interest free terms, store credit, credit cards or personal loans you have to pay this back. Any credit limit you have is a debt and will be included in your application finances as if they are fully drawn. You can increase your borrowing power by reducing the credit limit on your cards, consolidating your debts and working hard at becoming debt free.
3. Check your Credit Rating
Having late or missed repayments on your debts will negatively impact on your ability to borrow. You want to avoid your loan application from being rejected because of a late bill payment. Any defaults or negative repayment history will be shown on your Credit Report. You can get a FREE Credit Report within 10 working days by submitting an application to one of three National Credit Reporting Bodies.
Veda – report.mycreditfile.com.au
Dun & Bradstreet – checkyourcredit.com.au
Experian – www.experian.com.au
4. Employment History
Lenders will look at your ability to repay the loan based on your employment history and stability. Lenders prefer borrowers who have full-time employment with their current employer for at least six months and must provide proof of income in the form of payslips or group certificate. Self employed, part-time, casual or contractors are viewed by lenders as having increased risk and borrowers generally fall into a loan category called low doc loan. Low Doc borrowers will need to show additional financial information and and often pay a larger deposit and higher interest rates.
5. Application Frequency
If you are shopping around for a home loan and comparing lenders, be mindful not to submit applications to multiple financial institutions at once, as these will appear on your credit report. Decide on your preferred lender and only submit one application.
6. Disclosure
When submitting your home loan application it is very important that you disclose all relevant information. If you don’t reveal all credit cards or other debit and this is uncovered by the lender during due diligence, the loan may be declined due to non-disclosure. Be open and upfront with your mortgage broker and disclose everything! Your mortgage broker can deal with any issues and make the loan application more favourable than if you were dealing with a lender directly.
The First Home Owners Grant and governance of it’s legislation varies from state to state. Below you will find information relevant to grants available from each state, however since the information is constantly evolving be sure to visit www.firsthome.gov.au to find the latest information.
As of the 1 September 2021 the state government in Queensland offers grants of up to $15,000 for owners buying their first home or building a new home, where the total property value is less than $750,000. (Queensland Treasury)
New South Wales State Government offers the First Home Owners Grant (New Homes) Scheme for NEW HOMEs only. Since 1 August 2021 you may receive a grant amount up to $10,000 where the property value for a new home does not exceed the cap amount of $600,000; for a property where you purchase vacant land and enter a contract to build, or are an owner builder the total value (house an dLand) cannot exceed $750,000. (NSW Office of State Revenue)
To check if you are entitled to a concessional rate of transfer duty or an exemption check out the First Homer Buyer Assistance Scheme.
Australian Capital City (ACT) – First home buy grant ended 30 June 2019. (ACT Revenue Office)
However, stamp duty concessions are still in effect from 1 July 2019. The exact amount of the concession you could be awarded will depend on the value of the property and eligibility criteria being met. The maximum awarded concession amount for 2021-2022 $35,910. Form more information visit ACT Home Buyer Concessions.
In Victoria a grant of up to $10,000 is available for those who are buying or building a new home with a property value up to $750,000, assuming you meet all the criteria. (VIC State Revenue Office)
many of the above states and territories, buyers who qualify for a first home owner grant may also receive stamp duty exemptions and concessions.
First Home Owner Grant – Frequently Asked Questions
The First Home Owner Grant (FHOG) scheme was introduced by the Australian Government on 1 July 2000 to offset the effect of the GST on home ownership. To this affect the First Home Owner Grant is not taxed. The total amount and the legislation of the FHOG scheme varies for each state.
Under the scheme, a one-off grant is payable to first home owners that satisfy all the eligibility criteria
As a general of thumb you must be an individual, age 18 years or over, at least one applicant must be a permanent resident or Australian Citizen, buying or building your first home in Australia, and will occupy the home as your principal place of residence for a minimum of 6 continuous months within 12 months of settlement.
Eligibility criteria vary from state to state and we advise that you check the First Home Owner Grant eligibility criteria with your state government.
The First Home Owner Grant can be used to purchase an existing home or build your first home, which will be your principal place of residence for a minimum of 6 months within 12 months of settlement.
The First Home Owner Grant cannot be used to purchase a vacant block of land unless you have a contract with a builder to build a home on the land. Owning Vacant Land does not affect your eligibility for First Home Owner Grant.
Grant conditions vary from state to states and you may be eligible as an owner builder or you may be restricted to an existing home with major renovation completed. Contact your ACA mortgage broker and they will be able to advise you in more detail.
The First Home Owner Grant varies from state to state. You can find out how much the First Home Owner Grant is in your state here.
The First Home Owner Grant is not means tested and is not conditional upon receiving financial assistance
No. The First Home Buyers Grant is not paid until the settlement date.
To apply for the First Home Owner Grant, talk to your ACA Mortgage Broker. We can assess your eligibility and submit your application with your loan application. You can also lodge your application within 12 months after completion or settlement of your home.
Currently there is no end date for the First Home Owner Grant Scheme.
In addition to the various types of home loans that are available to help you purchase a property in Australia, there is a slightly different type of financial product that you may or may not require when you are moving home, known in the banking industry as a bridging loan.
These are a special type of loan, designed to bridge the gap in your finances should you end up completing on a new property before you have managed to sell your existing home.
Without extra finance, you could find it very difficult to keep up the payments on two mortgages at the same time and consequently miss the opportunity to buy a property that you really want: a bridging loan is meant to be used over a short period of time – normally from 6 to 12 months – to give you a little more time to sell your home.
Advantages
- Enables you to buy a new property before selling your existing home
Disadvantages
- Possibility of having to accept lower asking price if you cannot sell your current home
A More In-Depth Explanation
If you would like to discuss the government grants in more detail, please feel free to call us during business hours and we will be delighted to talk you through the ins and outs of any finance packages or grants that may be relevant to you.
We pride ourselves on our ability to explain everything in easy-to-understand terms and on our record of helping property buyers in all parts of Australia to obtain the finance they need, at highly competitive rates.
Do not take a chance with your next property purchase call ACA today on 1300 222 667 and speak to the experts.
First Home Buyers – Frequently Asked Questions
Buying your first home can be a bit daunting. However it is important to research your options and make an informed decision. Buying a home is a big commitment and talking to a professional mortgage broker will help clarify your questions and streamline your loan application process.
To get you started here are few common question asked by first home buyers.
What can you afford to buy?
Generally a First Home Buyer will ask – How much can I borrow ? However it is more important to be realistic with your budget and ask the question – How much can I afford?
Lenders will evaluate your borrowing power based on your income, your expenditure and your proven history to save and the size of your deposit. There can be a difference between what you can afford and what your credit limit will be.
Lending criteria will vary from lender to lender based on each finance institution’s lending policies. Your ACA Mortgage Broker has a comprehensive understanding of each of our 40 + lenders and their policies and will be able to recommend the right loan product to suit your unique circumstances.
Calculating your borrowing power
1. Rule of thumb
2. Draw up a house hold budget
3. Calculate
How much money will I need to save?
That will depend on where your are buying, the price of the property and the associate fees.
The larger the deposit the greater your borrowing power.
- Demonstrating your ability to save, with a strong saving history, will improve your chances of a loan approval.
- Having a large deposit, means you won’t need to borrow as much, which will reduce your repayments and save you from long term interest charges.
- A larger deposit may increase the number of loan options available to you and put you in a stronger position to negotiate a lower interest rate.
It is recommended that you save at least 20% of the property value as your deposit amount. However in this economy most borrowers will struggle to save this amount of money, the bare minimum you will need as a deposit will be 10% of the property value.
Any property purchase with a loan of more than 80% of the property value, will attract Lenders Mortgage Insurance LMI.
You will also need to have additional 4 – 6 % of the property value in savings to cover loan application fees, conveyancing and Stamp Duty.
Calculate your deposit saving power.
Use our Savings Calculator to get a better understanding of your deposit saving power.
- Draw up a budget
- Set a realistic saving target and stick to it.
- Setup automatic payments into a separate high interest savings account.
- Work hard at being debt free. Pay off your credit cards and other loans.
What is Lenders Mortgage Insurance?
Lenders Mortgage Insurance covers the “lender” and not you.Traditionally lenders require you to have at least 20% of the purchase price as a deposit, commonly refer to as LVR or Loan to Value Ratio. If you borrow more than 80% LVR this is considered a higher risk loan and Lenders Mortgage Insurance will be imposed. Some lenders will allow you to borrow up to 95% of your purchase price, reducing the amount of deposit that is required. There are many factors that effect how much LMI you will pay:
- The more you borrow, the greater the risk, the higher the cost of the insurance.
- The smaller the deposit the higher the cost of LMI.
- Your employment status and occupation can effect the perceived risk of lending to you.
- Some financial institutions, but not all, may vary the LMI between a principal place of residence and a investment property.
What is Mortgage Protection Insurance?
Purchasing a family home, for many of us, is going to be your biggest financial commitment. Naturally you will want to protect your ability to meet your loan repayments. Mortgage Protection Insurance (MPI) can provide peace of mind in knowing that if you are unable to work due to sickness, injury, redundancy or even death, you mortgage payments will be taken care of. MPI is similar to income protection insurance and life insurance for your mortgage.o.
What is Transfer Duty (Stamp Duty)?
How much is Transfer Duty?
The government will also change a mortgage registration fee and a transfer registration fee. We have outlined these fees below for each state, however we advise that you visit your state revenue office website for current information or talk to your ACA Mortgage Broker.
What is Pre-approval?
Pre-approval is a free process of applying for a loan and the financial institution approving your credit limit, without actually finalising the loan documentation with the property details. Having an understanding of your borrowing capacity allows you to bid at actions and make an offer on a property with confidence.
Pre-approval is not a guarantee of funding and or a mortgage offer.
Once you have found your dream home you will need to get formal approval from your financier – this process can take a little as one hour to a couple of days if property inspection and valuations are required.
What is a home loan guarantor?
A “guarantor” is usually a parent or family member, who takes on financial responsibility of paying off your mortgage, if you default on your payments.
The guarantor offers their own property or the equity in their property, as a security against your home loan. This provides the borrower a means of securing a home loan with a smaller deposit or borrow up to 100% of the property value or avoid paying Lender Mortgage Insurance, saving thousands of dollars.
While it can be great to help your children secure a home loan and break into the property market early, becoming a guarantor is a big decision and we recommend that you seek independent financial and legal advice to better understand the obligations and pitfalls before entering into a guarantor agreement.
What are the benefits of a guarantor home loan option?
A loan secured with a guarantor, is considered to be higher risk and not all lenders offer a guarantor home loan option.
Advantages to the borrower:
- Little or no deposit is required allowing you to borrow up to 100% of the property value.
- Reduce or avoid paying Lenders Mortgage Insurance.
- Some lenders offer reduced interest rates and debit consolidation.
The guarantor:
- You can reduce your liability by opting to guarantee only a limited portion of the loan.
- Most guarantee agreements can be released between 2 to 5 years, given that the loan has been reduced or if there is equity in the property value – you’re not locked in forever!
- You can provide alternate financial assistance via a parent assist home loan or gifted deposit home loan.
Speak to one of our mortgage specialists and we can help simplify the ins and outs and secure the right loan for your needs.
Be prepared – you may be in for a shock.Lets do a quick calculation.
- Property value $600,000
- First Home Buyer
- Established Property
- Location NSW
- Primary Residence. You plan to live in the property for the first 12 months.
- Deposit 10% ($60,000)
- Loan Amount $540,000
- Interest rate of 5%
| Stamp Duty on the Property | N/A 01/01/2022 |
| Mortgage Registration Fee | $147.70 |
| Transfer Fee | $147.70 |
| Total Government Fees | $295.40 |
|---|---|
| Lenders Mortgage Insurance | $18,719.00 |
| Additional Costs | $3,000 to $4,400 |
| Estimate Total | $22,309.80 to $23,409.80 |
Stamp Duty: Between 0 – 3% of the loan amount plus 2 – 6% of the property value.
Lender Mortgage Insurance (LMI): 1 – 3% of the loan amount
Lenders Mortgage Insurance Is an insurance to cover the financial institution in the event that you, the borrower, cannot make your home loan repayments. It does not cover you or your loan repayments if you default on your loan. Go here to learn more about Lenders Mortgage Insurance vs Mortgage Protection Insurance.
The amount of LMI you pay will need to pay will depend on your financial position and your Loan to Value Ration (LVR). On average LMI will cost between 1- 3% of the loan amount. For full doc loans, with most lenders, if your LVR is below 80% (that is you have a deposit of more that 20% of your purchase price ) you will not need to pay LMI.
Loan Establishment Fee: $600 – $1000
Property Valuation Fee: $300 – $400
Pest Inspection: $200 – $300
Building Inspection: $400 – $500
It is important to get a building inspection to check that the building is structurally sound and conforms with the Australian Building Code. You don’t want deal with the cost of unsafe renovations done by the previous owner.
Conveyancing & Searches: $1000 – $1500
Loan Service Fees
Loan Product Features
Council and Water Rates: $500 – $700
Building Insurance
Other costs to consider…
Building Insurance
Building Insurance
Mortgage Protection Insurance
While not essential, you may wish to consider Mortgage Protection Insurance which covers your mortgage repayments if you are unable to work due to injury or illness.
