Before you go house-hunting, we need to work out two very important things; your borrowing capacity (how much can you borrow?) and your affordability (whether you can afford to repay the loan)

 

How much can you afford to repay?

 

It is important to be realistic when determining whether you can afford the repayments on your loan. After you are familiar with your borrowing capacity, we need to determine how much your loan repayments would be if you borrowed that amount.

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How much can you borrow?

 

Your borrowing capacity depends on several factors, such as your income, employment history, savings, assets, financial commitments etc. Knowing how much you can borrow will enable you to determine which type of property you can afford.

 

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Home loan deposit

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Your deposit is also known as the equity that you contribute to the purchase of your property. The bigger your deposit, the better, as this represents a lower risk to the lender. A 20% deposit is ideal, however there are many loan products available that allow up to a 10% deposit.

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Elements that count towards your home deposit:

 

• Genuine savings – it is important to show a period of at least 6 months of genuine savings by the borrower. This shows the lender that you are capable of repaying a home loan. 

• Term deposits

• Shares

• A financial gift from a close family member.

 

Lender’s Mortgage Insurance (LMI)

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Lender’s Mortgage Insurance is a one-off payment that provides the lender with an extra level of protection in the even that you, the borrower, default (cannot repay) on their loan.

It is generally charged on loans that are more than 80% of the purchase price, that is, you have less than a 20% deposit.

 

The LMI is normally added to your loan amount and is due on settlement of your loan; you are not required to pay it upfront.

 

Don’t forget – LMI protects the lender, not the borrower, so it is important to take out your own insurance to protect your ability to service your loan eg. Mortgage Protection Insurance, Income Protection Insurance or Life Insurance. 

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First Home Owner’s Grant and Stamp Duty reduction

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You may be eligible to receive financial assistance from the government to help with the purchase of your home. To find out more about the First Home Owners Grant and Stamp Duty Reduction in Victoria for existing homes and new builds, please contact us.

 

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Additional associated costs of purchasing a property 

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- Pre purchase inspections – pests, illegal building work etc.

- Borrowing costs – Loan application fee, Lender’s Property valuation, Lender’s Mortgage Insurance (LMI)

- Government charges – Stamp Duty, Property transfer fee and Mortgage registration fee

- Insurance – House and Contents insurance, Mortgage Protection Insurance, Income protection insurance.

- Legal and conveyancing fees

- Moving costs – Furniture removalists, utility connections etc.

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