Are you looking to get a home loan but not sure where to start? Here are 10 important questions to ask home loan lenders to ensure you are choosing the right partner for you and one that is best aligned to your individual circumstances.
1. What is the comparison rate?
The comparison rate is the rate that helps you work out the true cost of a loan. It helps you assess the interest rate plus most fees and charges relating to the loan. Using this to compare different lenders and different loans is important and gives you a much clearer view of which option is the best for you.
2. What is the best rate you can offer me? Do you offer any first home buyer discounts?
The home loan industry is super competitive so it is worth asking what is the best rate they can offer you. You may be able to negotiate with your lender about the interest rate being offered. Additionally, sometimes lenders will reduce or discount the application fee for first home buyers or offer a honeymoon interest rate for new applicants so ask if this applies.
3. Are there any other fees that I need to be aware of?
Making sure you understand the different fees that are not included in the comparison rate such as Government and statutory fees, lenders mortgage insurance or valuation charges and event based charges such as redraw fees. Whilst you may not be planning on redrawing on your loan, knowing what you are up for in the future helps with your planning.
4. What documents do I need to provide for my application?
Different lenders have different requirements here, so make sure you ask for clarity around exactly what they need from you to consider your application. Ensuring you submit all the information will ensure they can process you request quickly. The most common documentation includes proof of income, bank statements and any loan documents from previous loans. Be prepared as they require a large amount of documentation.
5. What repayment options do you have?
Making sure you understand the lenders repayment schedule is key to ensuring you have the funds available at the right time. Most lenders will offer monthly, fortnightly or weekly repayments. Be sure to check your lenders repayment policy to ensure they match with your earnings.
6. Will a default on my credit report affect the loan?
A default can be listed on your credit report and will last for five years. It does highlight to a lender that you have failed to pay a loan back in the past and whilst they are wary of this it does not necessarily stop you from getting loan. The type of defaults that you have, how old they are, if they are paid, the total number of the dollar value of the defaults are all taken into account my lenders. It is best to talk to your lender about this as some are more flexible than others.
7. Are there any fees or penalties payable on this loan?
Most loans incur additional fees. Ask your lender for a full list of the fees as you will need to make sure you can pay these fees as well as the loan. In addition, borrowers sometimes charge fees for paying off a loan earlier, particularly with fixed rate loans. Make sure you find out about any prepayment penalties before you sign off on any loan. You may not be keen to pay a penalty if you pay off your loan early.
8. How much deposit do I need?
Generally, lenders are willing to finance home purchases of up to 90 percent if you have a very strong employment and savings history. Keep in mind you may have to pay Lender Mortgage Insurance if you are borrowing 90% of the property’s value. It may be a better idea to keep saving your deposit to avoid the additional expense.
9. Are you a member of a professional organisation?
Whilst lenders do not have to have a membership of a professional organisation, the ones that do, operate under stricter guidelines than those who do not. If your lender is a member of the Financial Services Federation it indicates they meet some exacting professional standards and gives you peace of mind.
10. Why should I choose you rather than another lender?
This is a big decision, so before you settle on a particular broker, you should challenge the lender with this question. Make sure you drill into the detail behind their answer “What specific things you make you better than another lender?”, “what exactly do you do to deliver great service?”.
Have not quite got your finances sorted?
If you have not quite got your finances sorted but are keen to start saving for a home, here are four ways to help you build up your deposit.
1. Put your goals in writing
Setting a financial goal will make it much easier to plan and save successfully. Make a conscious effort to track your expenses so you can see where your money’s going and cut back where you can. Small sacrifices, such as taking the bus instead of a taxi, cutting back on buying coffee or bringing your lunch to work can also go a long way towards helping you save.
2. Create a Budget
Buying your first home is exciting, but saving for it is not much fun…. but the more money you put down up front will help determine how much money you can borrow so the more you save the better.
There are many ways to save for a home that don’t require you to make major changes to your lifestyle. Here is an easy to use budget planner that will help you work out where your money is going so you can actively save for that home.
3. Beat the Credit Monster
Credit card debt, unpaid bills and personal loan repayments can be major setbacks to your saving efforts. As part of your saving strategy get these debts paid off. Start by paying off your debts that have the highest interest rate – typically your credit card. If you can’t pay it off in one lump sum, ensure that you pay more than the minimum monthly repayment. You will not only slash your debt, you will also have extra funds to channel into other debt commitments or even savings.
4. Make your Savings Work Harder for you
Making cutbacks on your lifestyle is one thing, but putting that money to use is another. Remove the temptation to spend your savings by arranging a set amount to be taken out of your pay each month and put directly into a savings account. Shop around, and seek a high interest rate savings account to get the best returns – many banks now offer an online high interest account.
Now you have a deposit saved, the next step is to talk to a home loan specialist.
