Before you embark down the path of purchasing a property, one of the major obstacles you are likely to face will be securing a mortgage. It is essential that you are fully informed throughout this process and arm yourself with as much knowledge as possible to ensure you position yourself to lock in a loan most suitable to your needs.
Here are some simple questions that you can ask yourself.
Are you actually ready to buy a property?
Before you set out to secure a mortgage for your property purchase you should start by asking yourself are you ready to buy a property. Do you have in place a budget that demonstrates a track record of saving? How secure is your current employment or if you are self-employed, are you cash flows consistent? Have you already saved enough for a house deposit and do you have additional savings to act as a buffer in the even of unexpected events. Whilst these are simple questions they are important factors before seeking out a mortgage and can save you considerable amounts of time.
What mortgage size can you afford?
When in the market for a mortgage it is important to distinguish between 'How much you can afford' and 'How much you can borrow'. Doing the math on how much the bank will lend you is typically a simple process by factoring in the property purchase variables (such as stamp duty, rates, insurance, renovations and professional fees) and your current property deposit, grants (first home buyers) and income.
A responsible lender should make you aware of the impact interest rates will have on repayments but it also pays for you to be somewhat of a pessimist during this stage, and try to identify other unexpected costs in order to provide yourself a buffer.
Knowing how much money you will realistically have at your disposal will also assist you significantly in identifying the right property for you in your real estate searches.
What type of loan is right for me?
The biggest decision when taking out a loan is whether or not to go with a fixed or variable one. There are upsides and downsides to both but effectively at the most basic level a fixed loan will mean that your interest rate on the loan will be fixed for a predetermined period of time, this in turns enables you to determine with certainty what repayments will be. On the other hand a variable loan means your loan repayments will fluctuate with lending/interest rate changes, which can potentially allow for a better outcome dependent on the economic climate at the time. Seeking out professional advice at this stage is highly recommended and a Buyers agent will be able to either assist your themselves or direct you to a qualified professional.
During the loan process you will also need to seek to get pre-approval for your loan. Whilst this doesn't ensure you will be granted a loan in the long run (a bank will want to value the property you hope to purchase) it will position you in a stronger position when dealing with a seller where time is a critical factor in the process.
Oh and don't forget loan details aren't set in stone, so make sure you bargain to get the best possible rate.
Should I use a broker?
In theory you can do everything a broker can, but with the plethora of lenders out there they can save you significant amounts of time not to mention money if you encumber yourself with a less than optimal loan. Typical a broker will take payment through the commission they receive from the credit provider you take the loan through. But with any service it is important to shop around as well as make sure the broker is not limited to a range of products or providers.
Do I need mortgage insurance?
Mortgage insurance is not the same as property insurance, in that it is purely there to insure your mortgage. By having mortgage insurance, some lenders will consider making loans with a lower deposit, however this does mean you are paying a hefty price for the insurance.
Lenders will use a loan to value ratio in determining whether or not your deposit is great enough to avoid having mortgage insurance. The loan to value ratio is calculated by dividing the property loan amount by the appraised value of the property you wish to buy. Typically to avoid paying mortgage insurance you should have a deposit of around 20%.