A Guide to Home Loans

Most people are unable to save enough money to buy a house outright. As such, they opt to take a mortgage to finance the purchase. This excerpt provides a few tips for people that intend to take out mortgages.

Home budget

Conduct some research on property prices in your locality and set a budget for the house you intend to purchase. If you have a tight budget, consider homes located a distance away from town centres. Also, you could buy a cheap, run-down property and renovate it in phases.

Mortgage broker

A mortgage broker is an individual that advises clients regarding mortgages. Your choice of mortgage broker should be independent and not affiliated with any financial institutions. In such a way, he or she can provide services without bias. To get the mortgage pre-approved, the broker requires various documents including your identification, proof of employment, current savings, debts and assets. He or she will negotiate the terms of the loan and reapply if your request is denied. 

Deposit

To secure a mortgage, you must have a deposit. Most lenders require a deposit of between 5 and 10 per cent of the property value. Preferably, you should have an amount higher than the deposit. In such a way, you do not require a loan of 100% of the property's value. The home buying process has a lot of extra costs such as home inspection, conveyancing, transport and real estate brokerage fees. Evaluate your family income to ensure that you will have an easy time repaying the mortgage. The mortgage broker will help you calculate the required monthly instalments. 

Types of home loans

Below are several types of home loans you should consider. 

  1. Bridging loans allow you to buy a new home without having to sell your old home. The bank will subtract the value of your old home from your current mortgage to create a bridging loan.
  2. If you plan to flip the property, take out a shared equity loan. The bank will charge low or no interest in exchange for a share of the property's appreciation.
  3. A honeymoon loan accrues a low interest rate for the first six to twelve months. After that, the interest rate reverts to normal.
  4. A variable-rate mortgage is a loan whose interest rates fluctuate depending on the cash rates set by the reserve bank.
  5. If you do not have any documents, consider a low-doc loan. However, this mortgage has a high interest rate.

When taking out a mortgage, set a budget, hire a mortgage broker, determine the required deposit and choose a suitable home loan.


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