How to stand out as a homebuyer

Buying a home isn’t easy.  Here are some tips to make sure you stand out and aren’t continually pipped at the post by more motivated buyers.

1. Get pre-approved for your loan.  Alongside the obvious benefits such as knowing exactly your maximum spend, being pre-approved is a signal to the vendor and agent that you know what you’re doing and you’re ready to go.  This can encourage a seller to negotiate in good faith and to take you seriously.

2. Make an offer.  Even though a property might be scheduled for auction, making a realistic offer can sometimes be enough to tempt a seller to sell prior to auction, especially if the sales campaign has been slower than expected.  Never underestimate that selling is just as stressful as buying, and a nervous seller might jump at your offer.

3. Offer flexibility.  Does the seller want a movable settlement date?  Do they want to be able to rent it back for a short period of time?  Being flexible on these types of requests might put your nose in front of other buyers.

4. Use a buyer’s agent.  Having a dedicated and professional advocate representing you can give you market knowledge, negotiating power, access to off market listings, and a calm and steady presence.  A buyer’s agent can leverage their relationships with sales agents to give the inside lane on finding a negotiating on a property.

Standing out as a buyer is all about showing that you’re serious, flexible, and financially secure. These qualities make sellers feel confident that the transaction will go smoothly and quickly, which can be the deciding factor in competitive situations.

How your spending habits affect your borrowing ability

Figuring out how much you can borrow for a home loan isn't just you telling the bank you can afford the repayments. It's a detailed process where every aspect of your financial life can be scrutinised. They'll want to know all the standard stuff about you like your household income, and other income such as rental or investment. But there's more to the equation than just the basics.

Your existing debts play a crucial role. Car loans, buy-now-pay-later, HECS, credit cards… these will all chip away at your maximum borrowing power. Credit cards in particular can bring your maximum down. Lenders will look at the card limits – not the balance – when assessing your borrowing power.

If you have non-mortgage debt and are thinking about a home loan you can consider paying down your debts and reducing credit card limits or closing credit cards. Speak to us first – if you’re using your saved deposit to close other credit you want to make sure you don’t leave yourself short.

What about my Uber Eats addiction?

Yes, banks care about how you spend. Particularly if you have a smaller deposit, the lender will want to see your spending habits to make sure you aren’t putting half your pay on race 4 at Flemington every Saturday. If you’re an Uber Eats fan and have excessive transactions on your statement this could hint to the lender that you aren’t super responsible with your spending. It’s beneficial to your bank statement regularly to see where your money is going. Uber Eats, Afterpay, Streaming Services, and eating out can quietly accumulate over time. Even if you aren’t applying for a loan, reviewing your spending is a good financial habit to be in.

In the end, getting a mortgage isn't just about numbers on a page. Part of it is proving to the bank that you're financially responsible and ready to take on the challenge. So, get wise, tighten your budget, and talk to us for advice on how to get into your home sooner.

Refinance case study: one conversation could save you $141,759

You might be surprised at the potential savings from refinancing your home loan. Emily and Jack bought their first home in Rozelle six years ago and had not reviewed their home loan since then. However, with recent changes to the market, they were now ready to discuss refinancing.

We looked at their financial position and discussed their goals. They were looking for a lower interest rate, better online services, to pay down their loan sooner and consolidate debts. Comparing over 30 lenders we were able to select a loan tailored to their needs and objectives.

We selected a loan with a lower interest rate, minimal fees, an offset account and redraw facility.  The offset account works for Emily and Jack as they both earn an annual bonus, and putting the bonus income in the offset will allow them to pay off their loan sooner by reducing the interest payable.

When we refinanced the mortgage, Emily and Jack also took the opportunity to consolidate their debts. By borrowing an additional $25,000 they were able to clear and close their credit card and car loan. This had the benefit of reducing their overall monthly loan repayments, and an additional benefit of streamlining their finances as they only had to manage the one monthly repayment. The lender we selected has an excellent online banking portal - something that was very important to Emily and Jack.

We selected a low interest rate with a $4,000 cash back incentive to maximise savings. With their $1,200,000 mortgage this refinance will save them an incredible $8,725.36 in the first 12 months, and a total savings of $144,759,000 over the life of the 30 year loan*. This savings, achieved purely by refinancing, allows Jack and Emily to pay off their mortgage sooner, a primary financial objective when we first spoke.

We are up to date with the latest market information and are committed to finding you the best possible rate. If you want to chat about the refinance options available to you, contact Garreth today on 0414 444 683.

*Interest rates are not fixed and will vary in accordance with the market.

Expert advice from a broker committed to finding the best solutions for your needs

How will the federal budget affect property and lending?

October 2020 update from Blackwattle Finance

Economic news

The federal budget is the big news this month. The government has outlined their path away from recession, with tax cuts the lead story. There are three major property related measures highlighted: extension of the first home buyers deposit scheme for new homes (10,000 new places), more low-cost financing for affordable housing through NHFIC, and additional funds for the Indigenous Home Ownership Program.

There are also big plans for credit regulations which I will touch on further down.

At Citi’s 12th annual investment conference RBA Governor Philip Lowe hinted at another interest rate cut. Lowe said that “As the economy opens up… it is reasonable to expect that further monetary easing would get more traction than was the case earlier”. He also confirmed that an increase in the cash rate is as least two or three years away – something for mortgage holders to keep in mind when making decisions on loan options.

Property news

September saw a boost in the national housing market, with prices and new listings increasing in all capital cities except for Sydney and Melbourne. Given the size of the Sydney and Melbourne markets (more than half in terms of value) the overall average value came down ever so slightly. This has meant five straight months of decline overall, however the rate of decline has decreased.

Predictions are that October will continue to improve, with Victorian lockdowns easing and the seasonal spring activity driving more activity.  Experts are highlighting "clear optimism" generally.

Lending update

As touched on earlier, there is quite big news.  As part of the federal budget announcement Treasurer Frydenberg has flagged plans to simplify the regulations around lending with the aim to free up credit.  If Parliament agrees to the proposal, we will see the changes come into play in March 2021.  Ostensibly this will make getting a loan more straightforward, with the onus for accurate application information shifting back from the lender towards the borrower. 

My two cents?  Banks will be given a huge task to update processes and policies to fit the reforms.  The size of the task will mean it will take an eon to implement fully and properly, and won’t have the economic impact hoped for.  Still, simplification will be welcomed by many who have found the process of obtaining credit bordering on ridiculous in recent times.  

About half of the 500,000 home loans under deferral of repayments have now recommenced payments.  This is a welcome development which means that the finances of Australian homes are returning to normal.  People who have been unable to refinance into the low rates now available should soon be able to demonstrate repayments and allow them to switch.  Once again, let me know if this is you.

FIRST HOME BUYERS – NOW IS YOUR TIME.  Another 10,000 spots have opened for new dwellings in the federal government’s first home loan deposit scheme.  In short, borrowers who save a 5% deposit will have their loan guaranteed by the government which means no lenders mortgage insurance (LMI) payable.  Combined with stamp duty concessions this means big savings for those of you who have been trying to break into the market.  If you want to see if you’re eligible please let me know.

Case study - guarantor/family pledge loan

Jack and Amy are a couple in their early 30s.  They had been renting together for a couple of years and approached me to discuss options.  They were convinced that buying a home was out of reach, but a mutual connection had recommended they speak to me anyway.

Both Jack and Amy are established in their careers and earning good money.  The issue for them was not whether they could afford loan repayments, but rather that they did not have much in savings.  A large portion of their income was going to rent and they were taking longer than they wanted to get a deposit together.  They had $30,000 between them and wanted to buy an $800,000 property. 

Amy’s parents are retired and own their home outright.  They were just as keen for Jack and Amy to be able to buy a home as Jack and Amy themselves.  They had previously assisted Amy’s brother and wanted to do the same for Amy and Jack.

With the assistance of Amy’s parents, we were able to get what is known as a guarantor loan or a family pledge loan.  This is how is worked out:

• Jack and Amy found a house for $800,000

• Jack and Amy borrowed $810,000 which was about 101% of the value of the house

• Amy’s parents put their home up as security to cover part of the loan

• Jack and Amy used their $30k in savings to cover stamp duty and other costs on the purchase

Amy’s parents guaranteed part of the borrowings using the equity in their own house.  By allowing Jack and Amy to use their home’s equity they could:

• Borrow enough money to get the home they were after without saving a larger deposit

• Avoid paying lenders mortgage insurance (LMI), saving thousands of dollars

The way a guarantor/family pledge works is that there are two loans – in this instance there was one for $640,000 and a second one for $170,000 (total $810,000).  The second loan was guaranteed by Amy’s parents with their property as security.  Jack and Amy are responsible for repayments on both loans, with Amy’s parents guarantee coming into effect if Jack and Amy fail to make their repayments.  Over the next couple of years, Jack and Amy will pay down the loans and hopefully the property value will rise.  Once the loan to property ratio comes down sufficiently Amy’s parents will be released from their guarantee.

Guarantor/family pledge loans are usually not the first option I recommend: there are risks that need to be understood by all parties.  In this instance it was suitable as Amy’s parents were experienced and comfortable with the process.  This was a great outcome that brought forward home ownership for Jack and Amy by a couple of years at least.

Buying with a smaller deposit - lenders' mortgage insurance

When you consider that an inner Sydney apartment could set you back a million dollars, saving a 20% deposit to buy can seem an insurmountable task. That’s where insurance can help.

Lenders mortgage insurance (LMI) may be an added expense, but it offers buyers the opportunity to dive into the property market earlier, without saving up an entire 20 per cent of the property’s purchase price as a deposit.

What is it?

LMI protects the bank or lender should a home loan go into default, guaranteeing that the lender will get its money back if the property needs to be sold and there is a shortfall in repaying the loan.

While a 20% deposit generally provides a good buffer against any drops in property value over the life of a loan, LMI can also provide the same protection, meaning borrowers can purchase property with a smaller deposit.

What’s in it for you?

For the borrower, it may seem LMI is just another expense to cover. But insurance can mean that some buyers will be able to enter the property market with, for example, only a five per cent deposit saved. For a million-dollar property, this brings the deposit down from $200,000 to $50,000.

And, if the market is hot and prices are rising rapidly, paying LMI so that you can buy now could be cheaper than taking the time to save a bigger deposit. In the time it takes to save a higher deposit amount, property prices may well have surged by more than cost of the insurance so, for some properties and purchasers, it can make good financial sense to purchase earlier even with the added cost of LMI, especially when you consider the rent that you would pay while you’re saving.

What you need to know

The insurance premium is generally a one-off payment, but you can usually capitalise it into the loan amount so that you are paying for it month-by-month along with your mortgage. 

There can be a big difference in premium amount paid.  If for example you have a 10 per cent deposit compared with a five per cent the LMI premium will be much cheaper.  It’s worth gathering all the extra funds you can muster, even if you despair of reaching the full 20 per cent.

How to pay off your home loan faster

Reducing the life of your loan isn’t difficult; there are many simple things you can do to cut years off your mortgage. Here are some tips that will help you be mortgage-free sooner than planned.

 Small extra repayments

One of the most obvious ways to pay off your home loan quicker is to make extra repayments. Depositing lump sums, such as a tax return or work bonus, will always be beneficial, however it doesn’t always take large amounts or windfalls to make a substantial difference – planning for regular, small cash injections can have a great impact over the life of a loan.

 Let’s say we give an extra $50 a fortnight on a $500,000 loan, that saves you $32,000 of interest over the life of the loan which in turn will save you just over two years,

 Switch your payment intervals

If you find that you don’t have the discipline to make extra repayments, then simply switching your payment structure can also help save years off your mortgage, as well as simplifying your finances if you are paid fortnightly.

 Because there are 12 months in a year but 13 four-week cycles, by switching your payment intervals from monthly to fortnightly, you are essentially paying off an extra month per year.

 Make sure you have the right type of loan

Ensuring your loan allows extra repayments without penalty will let you to make the most of bonuses or funnel small extra payments to reduce the loan principle more quickly, saving on interest immediately, while an offset account will use your savings or living expenses to reduce your principle, while still allowing you to access these funds from a transaction account.

 Offset accounts are particularly useful. Because interest is calculated daily but charged monthly, any money sitting in the account will help reduce the loan.

 Although you may have to pay extra fees for the offset or redraw account, these may well be lower amounts than the interest saved. Talking to usis the easiest way to work out whether this option is financially sound.

 Paying off your home loan faster isn’t difficult, however it does require financial discipline and expertise in ensuring the right loan features are in place.

Guaranteeing your child's loan

Being a guarantor generally means using the equity in your own property as security for your child’s home loan. It can help a first-home buyer to secure finance for a property they can afford but may not have a large enough deposit for, and to avoid the added cost of lenders mortgage insurance.

There are other advantages as well. By guaranteeing a loan, you’re helping your child enter the property market sooner.  Also, your child may be able to buy in a more desirable location and a home that better suits their needs. If they did it on their own, they may need to go further out of the city or perhaps settle for fewer bedrooms.

You may want to help your child but it’s important you don’t go into the transaction blindly.

The main risk of guaranteeing the loan is that, depending on the structure of the guarantee, you could be liable should your child default on the payments, either by taking over the repayment schedule or handing over a full repayment.

If you can’t make the payments, the lender may sell the home used as security. If this is still not enough, the lender may also require you to sell assets to meet outstanding debt.

Another major risk is a bad credit rating if default occurs.

Plus, if you need to borrow money for another purpose, your property cannot be used. If for instance you want to buy an investment property, you can’t use the equity in your home because it’s already tied up in the child’s loan.   

There are ways to minimise the risks. The most common is using a monetary gift or private loan. This involves borrowing money against your property in your name, and then gifting it to your child.  It is wise to have a legal agreement in place.

Another way to avoid the risk is to buy the property jointly with your child. This means your name is on the title and you have a certain percentage entitlement.

Finally, outline an exit strategy. Financial situations change and, as the loan decreases with repayments, there may be an opportunity for you to withdraw your support to free up your assets without impacting your child’s loan.

Five things first-home buyers need to know

Before you decide to purchase your first property there are a number of things to consider, including your current personal circumstances and financial status.

1. Think about why you want to buy a home

Do you want to live in it or will it be an investment property? This can help determine the kind of loan you apply for and home you buy, depending on your short and long-term plans.  

2. Research potential properties and loans

Knowing the market is crucial, so do some research on the areas you are targeting.  Check out auction clearance rates and recent sales, as well as price trends in the area. Once you are aware of what you are looking for and the approximate price, the next step is saving a deposit.

While some lenders will offer loans if you have saved less than the usual 20 per cent deposit, being able to show a record of good saving habits will aid in getting your loan approved.

Then, when you talk to us about applying for pre-approval on the right type of loan, we can help to work out what you can afford in terms of repayments.

3. Factor in other costs involved

Depending on the property, there are usually a number of additional costs that you'll need to factor in. This can include, but isn’t limited to, stamp duty, loan establishment fees, legal and conveyance services, utilities, property insurance, maintenance and lenders mortgage insurance.  There are some first home owner grants and tax and duty concessions for first home buyers that you might be eligible for.  Speak to us about what other payments you will face and what concessions you might be able to get.

4. Think about your future

Just because your current situation allows you to get a home loan, that doesn’t automatically guarantee that you will still be able to service it in five years’ time. Is there a possibility your role at work will change? Are you considering going back to study and reducing your working hours?

5. Get professional help

With so many things to consider, getting professional help is highly recommended. We can help you to connect with the expert people for tasks such as property checks, pest checks and any legal queries. Going it alone can prove costly. Avoid nasty surprises down the track by getting the right people to do the appropriate checks for you from the beginning.

Get in touch with us at Blackwattle Finance for great advice about buying your first home.