Borrowers Guide to Home Loan Lending
The key before obtaining your keys
Before you start looking for a home or investment property, there are several key details to consider such as:
How much can I borrow? Understanding the costs involved How much deposit do I require? Can I afford it!
Obtaining a loan can be confusing and overwhelming at times, understanding the basics will ensure you will be prepared with Gorila Loans
So How much can I borrow?.
Before purchasing a property it is always important to get an idea of how much you need to borrow.
How much you can borrow will depend on several factors including:
- Your income
- What you are buying (home or investment)
- Eligibility for Home Owner Grant
- What deposit is required
- Other loan repayments and commitments
*An important factor to consider is how comfortable you are financially to repay the proposed loan. It is imperative that you do not over stretch yourself, it is best if you sit down and work out a budget and understand how much you have left over to repay a loan comfortably. You should also factor in interest rate movements as this will affect your repayment amount.
The cost involved in purchasing a property is more than just the purchase price.
Some of the other costs would include the following:
Government Stamp Duty
This is a government cost that is usually the biggest expense outside the purchase price of the property. Stamp duty varies between the states and territory. A great website is available for guidance on what the approximate stamp duty cost would be in your relevant state: www. stampdutycalculator.com.au
Home Loan setup up costs
This includes establishment fees and will vary pending on the lender and the loan product chosen. It is important to note that you may also require Lender’s Mortgage Insurance (LMI) depending on your deposit size.
Conveyancing Costs/Lawyer fees
Conveyancing is the process of which a property’s ownership is transferred from the current owner (the vendor) to the buyer. A conveyancer is a legal representative that specialises in this fi . Either a conveyancer or solicitor will review your Contract of Sale and ensure appropriate checks are conducted on the property with local government agencies.
Inspection Costs (Building and Pest)
It is always recommended that prior to purchasing a property, you hire professionals to inspect the property for structural defects, concerns, pest infestations, anything that could potentially cause damage to your property.
Getting a Deposit Together
There are many options available in relation to how much you will need to come up with as a deposit. Depending on your situation it could vary from 3%-20% - sitting down with your trusted Gorila Loans mortgage professional will ensure you know which options are available to you.
Understanding the mortgage process
The Mortgage Steps.
There are 10 steps to the Mortgage Process. These are:
- Completion of a Loan Application
- Lender Assessing Application
- Obtaining a decision – Conditional Approval
- Valuation of Security being provided
- Lenders Mortgage Insurance
- Formal Approval
- Mortgage Documentation
- Insurance Requirements
Step 1 - Interview with Gorila Loans
Your mortgage professional will meet the you at a place which is the most convenient to you. This could be after hours in your residence; at your work site during your lunch break or even at a cafe! During the interview process, your mortgage professional will discuss the home loans (with the necessary features and benefits that you require) that suit your situation. They will go through and provide you with numerous options that are available and then go through each one with you to see which is the most appropriate that will suit your needs and wants. Once you are happy with your selection of the loan product, the loan process will commence.
Step 2 - Completion of Loan Application
Your Mortgage Professional will now complete the lenders application that you have chosen and will go through what is required in relation to all the necessary documentation which is to be included so they can lodge your home loan application. They will also go through your income situation to see if you will be able to service the loan that you are applying for. It would depend on your situation as to what documents would be required. Upon receiving all the relevant documentation the Mortgage Professional will submit it to the chosen lender.
Step 3 - Lender Assessing Application
The home loan lender will assess your application to determine whether you meet their serviceability and credit requirements. This process includes confirmation of your income, employment and a credit reference/history check. Your supporting documentation is also assessed at this time. If the credit assessor requires any additional information they will send through a request to the Mortgage Professional.
Step 4 - Conditional Approval
Gorila Loans will receive a communication from the lender in the form of a conditional approval on your behalf. The lender will also outline any matters that need to be addressed before they can issue an unconditional approval. Gorila Loans will advise you upon receipt of this communication.
Step 5 - Valuation of Security being provided
The most common condition of an approval is valuation of the security being provided. The lender will order the valuation and this could take up to 3-4 days to complete
– it will all depend if the home loan valuerwether they can obtain access to the security property being provided. This is a very important step in the mortgage process and co-operation is utmost to ensure that the loan application is not delayed due to the fact that the valuer cannot access the property security. If there is an application fee applicable the cost of the valuation is usually included in this fee.
Step 6 - Lenders Mortgage Insurance (LMI)
This step will only be necessary if you have less than 20% deposit or insufficient equity in an existing property.
What is Lenders Mortgage Insurance???Lenders Mortgage Insurance (LMI) is one of the most popular ways to achieve the dream of home ownership sooner for borrowers that do not have a large deposit. Many lending institutions require borrowers to contribute a 20% deposit before they will agree to provide a loan. This is largely to protect against the risk associated with providing the borrower with the loan in the event that they default.
By using LMI, lenders are able to pass on this risk to a mortgage insurer, which in turn enables them to offer the same loan amount but with less of a deposit.
*LMI should not be mistaken for Mortgage Protection Insurance, which covers your mortgage in the event of death, sickness, unemployment or disability. LMI protects lenders against a loss should a borrower default on their home loan. If the security property is required to be sold as a result of the default, the net proceeds of the sale may not always cover the full balance outstanding on the loan. Should this be the case, the lender is entitled to make an insurance claim to the Mortgage Insurer for the reimbursement of any shortfall, calculated in accordance with the terms of the insurance policy. It is a once off premium and in a lot of cases can be capitalised with the loan.
Step 7 - Formal Approval
When a home loan application is formally approved (some lenders use the terminology of unconditionally approved) it means that all conditions and criteria required to assess a loan application have been supplied, assessed and approved. It is only when a home loan application is formally approved that the borrower can feel comfortable that they can obtain a home loan.
If you are buying a property it is advisable not to exchange contracts until such time that your loan has been formally approved. This will be communicated to the Mortgage Professional of who will notify you immediately of the decision. A formal Letter of Offer will then be issued by the lender. Mortgage documents will be prepared and will be sent directly to the applicant/s or the applicant/s solicitor if that was requested in the loan application.
Step 8 - Mortgage Documentation
Now that the formal offer has been provided, mortgage documentation is prepared by the lender. These include the letter of offer; transfer document; terms and conditions of the loan you have chosen and any other documentation that is pertinent to the lenders own guidelines. If a purchase is involved then it is highly recommended that you should sit down with your solicitor/conveyancer to go through the paperwork and it will be the solicitor/conveyancer who will then liaise with the lender to schedule a settlement date. If it is for a refinance or a ‘top up’ then it is recommended you sit down and go through these documents with your Mortgage Professional.
Step 9 - Insurance Requirements
With the new liabilities that come with owning property, it is important to consider or review your insurance requirements to ensure you are appropriately covered. There are four main types of insurance you should consider:
- Home insurance
- Contents insurance
- Life insurance
- Income protection
You may need to start your insurance cover prior to settlement.
Step 10 - Settlement
After the mortgage documents are signed, witnessed and sent back to the lender, then settlement is arranged via your solicitor/conveyancer or if there is not a necessity for a solicitor/conveyance then the Mortgage Professional will be involved to ensure settlement is completed. The first repayment on your loan will usually be required one month after the settlement date.