The team at Avis & Funk Law were lucky enough to sit down recently with Gold Coast based mortgage broker Steven Williams of Right Move Finance for a Q&A to get answers to some of the burning questions asked by first home buyers and those who are new to the property market.
What is “pre-approval” and how does it help home buyers?
A pre-approval is a powerful tool for you as a buyer, because it makes you appear serious in the eyes of vendors and sales agents, whilst also giving clarity as to just how much you are able to spend on a property.
Once you have submitted your loan documents and all the required documentation, such as payslips, group certificates and/or bank statements, if you are successful, you will be issued with a conditional loan approval.
What this means is that a bank will pre-approve your home loan, up to a certain borrowing limit, subject to you finding a property that meets the agreed criteria, and provided that your situation doesn’t change in the coming months. Generally, a pre-approval is valid for three months, but it is merely an indication, and not a guarantee that you will get a loan.
Is the finance approval process very complex or time consuming?
The approval process can be very complex with every lender having their own lending criteria and document requirements which makes it hard for an individual to know what is required before applying. This is where a good broker can help, they can ensure you are applying to a lender who fits your needs and who’s lending criteria you fit. This saves time on applying to lenders that may not accept you.
How time consuming the approval process can be depends on a number of factors including an individual’s circumstances. For example, a full time PAYG person employed for 5 years in their job with a genuine 20% deposit would normally be quicker than a Self Employed person with a family guarantee in lieu of genuine savings.
Buyers often pay a sizeable amount in stamp duty and other fees, can this amount be covered by their loan?
Unfortunately, stamp duty and legal costs generally cannot be added to the loan so it is important to have these costs available as part of your overall deposit. There are various state government incentives related to stamp duty that may reduce the cost and your mortgage broker will be able to assist with assessing what incentives are available to you.
There are other fees involved including bank application fees that can generally be added to the loan amount subject to the total loan to value of the property. Another important cost to consider is Lenders Mortgage Insurance (LMI) which you are required to pay if you do not have a 20% deposit. LMI can normally be added to the loan, however it again is subject to the maximum loan to value ratio (LVR) the lender offers.
What is Lenders Mortgage Insurance (LMI)?
A buyer is generally required to pay a lender for mortgage insurance when taking out a loan in which the LVR is more than 80%. The insurance covers the lender, should the buyer default on payments. It is important to note that LMI covers the lender and not the buyer, although it is the buyer who must pay for it. This means should the bank sell your home in the event of default on the mortgage, if there is a shortfall then you will still be liable for the shortfall even though you had LMI. The mortgage insurance is a one-off payment; there are no yearly or ongoing costs.
The main advantage of the LMI is it enables buyers to purchase a property with a smaller deposit, instead of 20% they may only need 5% (plus costs).
What are some things a buyer should look for in a loan?
One of the biggest mistakes people make is to focus on the advertised interest rate, however this is only part of the overall picture. Loans can include introductory rate discounts, monthly or annual fees so it is always important to consider the overall cost of the loan and not just the advertised rate. A slightly higher rate without any fees may actually end up costing less.
There are also several different types of home loans available including fixed rate, variable, split and interest only loans. The type of loan that is best suited to you depends on your own individual circumstances which is something a mortgage broker can assist in choosing.
Another consideration which has become a major consideration in today’s hot property market is the lenders turnaround times – how quickly can they process your home loan application? You don’t want to be applying to a lender who has slow turnaround times if you need to settle on a property quickly so a broker can help you find the right balance between speed of service and cost.
What is a mortgage broker?
A mortgage broker is a qualified and regulated specialist who is there to assist you through the entire home loan process. They will start by discussing your existing situation, your lending needs, requirements and obtain all necessary information pertaining to your lending application. Based on this information and utilising specialist lending software, they match your lending requirements to a selection of loan products offered by a diverse range of lenders. They will also use their expertise to match you to a lender where you have the most chance of success. A good broker will explain the types of loans available to you from a range of banks along with an overview of the relevant costs associated with your loan application.
Brokers are there throughout the process and act as an intermediary between you and the lender, completing and packaging the application. They will also liaise with your solicitor, real estate agent, accountant and any other related party to ensure a smooth and timely settlement.
Finally, mortgage brokers work for you and not the banks.
What are the benefits of using a mortgage broker instead of going directly to their bank?
A bank will only be able to offer you their own products and services, a broker has access to a panel of lenders with 1000’s of products to choose from. Using a broker means you will get a product that specifically matches your needs and requirements. Brokers are also bound by Best Interests Duty (BID) which means they must act in your best interests when recommending a product and be able to clearly demonstrate why they have recommended a product. Banks are not bound by these same regulations as they can only offer their own products which may not match your needs and requirements.
What fees does a mortgage broker charge?
Brokers generally do not charge a fee for their service as they will receive a commission from the lender. It is important to note that any commission a broker receives does not affect the cost of your loan and brokers are legally bound to act in your best interests so they cannot recommend a product based on a higher commission. All commissions will be disclosed by the broker in their documentation.
If you still have any unanswered questions about banks, brokers, mortgages or anything else lending related, reach out to Steven Williams and his team at Right Move Finance for an obligation free chat.
For anything else property related, drop in and see our team of experienced conveyancers and property lawyers here at Avis & Funk Law in Varsity Lakes.