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Buying your first home is an exciting, but big step to take and one that comes with many questions and decisions. The first big question is how much you can borrow and what your likely repayments will be.
There are so many home loans on the market these days with an increasing variety of rates, fees and features that it really pays to shop around. The main challenge is to look beyond interest rates and include all the costs with the loan, also the features that a home loan offers. Often there is a trade off between interest rate and flexibility. Make sure the loan suits your circumstances and the way you want to pay it off. Borrowers in the market for a competitive home loan need to educate themselves about the different home loans which are available on the market.
We’re all unique when it comes to our finances and borrowing needs. The amount you can borrow, commonly known as your borrowing capacity, differs from lender to lender as each lender has their own set of rules. Our home loan comparison report will give you an idea of how much you can borrow with of 30 lenders. This is a very important step as you need to know this amount to go house hunting.
Pre-approval is a commitment from a lender that (in principle) you meet their criteria for a loan up to a certain amount, and that they will provide you with the finance once you find the right property. You don't need to have decided which property you'll purchase. Obtaining pre-approval can take as little as 24-48 hours but this time frame can vary significantly from lender to lender.
Once the lender has assessed and approved the application, they will issue a ‘pre-approval letter’ which lasts generally between three and six months. The pre-approval letter will usually indicate the maximum amount you can borrow therefore enabling you to determine which properties are in your price range.Benefits of obtaining pre-approval can include:
When choosing a home loan, it's important to work out the features you need from your loan and how much it will cost you in fees.
Common loan features
Principal and interest loans
Most people will take out a principal and interest home loan, this is where you make regular payments against the principal (the amount borrowed) as well as paying interest. This type of loan is designed to be repaid in full over the life of the loan. These home loans will usually offer a number of different features such as a redraw facility or an offset account. Generally the more features a loan has the higher the cost will be. The loan is usually repaid over an agreed period of time, such as 30 years.
Interest only loans
In an interest only home loan your repayment amount will only cover the interest on this loan. The principal amount you borrowed will not reduce unless you choose to make extra repayments. Paying interest only may cost you more over the term of the loan because you're paying interest on a principal that doesn't reduce. Some people choose interest only home loans if the property they are buying is an investment. These home loans are usually only interest only for a set period of time, after which you will need to increase your repayments to start reducing the principal.
Fixed Vs Variable
A fixed rate home loan is best for people who like the security of knowing their repayments. A variable rate home loan is best for people who like to keep their interest costs to the very minimum and who are happy to gamble on the future direction of interest rates.
A mortgage broker can assist you by making sure that your mortgage application is complete, and presents your case for finance in the best possible light.
A mortgage broker is also aware of the different serviceability requirements for each lender, and can direct you towards lenders who will be more sympathetic to your present financial situation.
Want to make a really informed decision? Be armed with as much relevant information as possible before making your big purchase? You can access extensive research on both real estate and the economy in general through Access One, and it’s free. If you are considering buying your first property call Access One 1300 722 278 or get one of the free Reports which will outline all the information you need to make an informed decision.Home loan comparison report
Next Step: Buying your home
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Access One is changing the way Australians buy mortgages by being more informed. We’re an award winning mortgage broker that combines technology and 19 years of experience to find you the lowest total cost home loans.
Access One is currently one of the longest running brokers for the AFG network being inducted into the hall of fame in 2011.