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How to save a deposit: house-sitting

How to save a deposit: house-sitting

One of the toughest parts of realising the dream of owning a home is saving for a deposit. The options seem pretty dismal – subsisting on a diet of beans on toast, never socialising, moving back in with the parents – and are almost enough to prompt a commitment to a life of renting. Of course, you may not have all the comforts of home, but house-sitting can even mean seeing a bit of the world while saving a deposit.

To help the savings grow without resorting to these options, many people house-sit while squirrelling away funds.

David and Ellen, a couple in their mid-20s, have saved almost $25,000 they would have used on bills and rent by house-sitting. It was an especially good financial decision when they were living on a single wage, with David working at the local bike shop as Ellen finished her final year at university.

Before they started house-sitting, David and Ellen were renting a small apartment in Mosman, NSW, and they estimate they have saved $22,000 in rent and approximately $2000 in bills by house-sitting.

Of course, it is much easier if you have flexibility in where you live and for how long, but the real key is an ambition to save.

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Rules of investment

Rules of investment

When you’re trying to secure finance for an investment property, it’s important to keep a few simple rules in mind to make sure you get the best deal possible and will be able to afford the repayments, come what may.

If you’re thinking about purchasing an investment property, it’s important to manage the risks adequately. For example, you shouldn’t rely on rental returns as a guaranteed income to meet loan repayments, as there are times when a property may be vacant or hard to fill immediately and some months the rental return on a property may be diminished by maintenance costs.

“A finance broker will help a borrower find the right product, so that he or she can afford the repayments,” said one helpful adviser. “The adviser will add a two per cent rate hike onto the rate the borrower will be looking to take, to make sure they can still make repayments if, or when, mortgage rates go up.”

With access to property data and trend analysis, a finance broker can pull property reports for you, detailing how the area has performed in the past as an investment, the average median house price or rate of return and how much the property values have increased over the past five or six years. These are details that investors generally can’t access.

Even better, if you meet a local finance broker in the area where you want to invest, he or she will know that particular market and be able to provide a lot of detailed information from working there every day.

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How to Keep your Loan Application on Track?

How to Keep your Loan Application on Track?

Other than the obvious documentation that needs to accompany an application, satisfactory identification and evidence of income by way of pay slips, many lenders will expect to see a reference from your employer, group certificates or tax returns, and records of any investments or shares that you might have.

For the best possible chance of getting the loan that suits your circumstances, you need to tick all the boxes. If an application is not completed correctly, you risk delays in approval, or even being declined by potential lenders.

If you are self-employed, you will need to organise alternative documentation to prove income, such as financial statements relating to the profit and loss of your business going back two years.

Lenders will also want to see bank statements going back a few months in order to track your spending and savings history. Most importantly, you will need to provide the details of your debts.

You must include documents that outline debts, personal loans, credit card liabilities and any expenses relating to dependants. If you don’t disclose this information, your loan will very likely be declined.

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Refinancing traps you need to avoid

Refinancing traps you need to avoid

Whether you’re after lower repayments or want to tap into the equity sitting in your home, refinancing can offer a world of benefits. Here are some things to be aware of so that you don’t find yourself hooked into a bad deal.

Honeymoon rates are just thatDon’t be lured by offers with discounted introductory rates unless you’ve calculated the savings over the life of the loan. While a loan with a discounted interest rate seems a tempting offer, it’s only temporary. Once the introductory period is over, the interest will revert to a higher standard variable for the rest of the loan term. It may be more beneficial financially to negotiate a lower interest rate without an introductory discount.

Don’t be fooled by the interest rateFinding a lower interest rate doesn’t necessarily mean you’ve scored yourself a better deal. In fact, a product with more features may cost you a bit more in fees or interest, but could save you more in the long run. Including features such as an offset account will prove valuable as it will allow you to make larger repayments or put any extra cash against the loan. Products without this feature may charge a fee for early repayments.

Be aware of the feesOne of the main purposes of refinancing is to lighten the financial burden, however, that doesn’t mean that it’s not going to cost you. There are many fees involved, which may include discharge and application fees, a valuation fee, land registration fee, and mortgage insurance. You may also be subject to stamp duty depending on what state your property is located in. While these cannot be avoided, you have to ensure that the costs involved are not higher than the savings, to make the process worthwhile.

While there are traps to avoid, a little expertise can take the stress out of refinancing to save you thousands, fund that renovation, or simply find a loan that suits your life a little better. Contact us!

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Case study: How to avoid settlement penalties

Case study: How to avoid settlement penalties

Connie Wilson was well on her way to becoming a first-home owner when issues cropped up prior to settlement that threatened to cost him her deposit.

Having found the house she wanted to buy and exchanged contracts for sale, Connie found herself considering a costly settlement extension due to unexpected problems with her deposit.

While she had thought that having a deposit sitting on her account would make the process simple, Connie had not realised that she needed to have the funds in her account for a minimum of three months before a lender would consider them genuine savings.

Her deposit, a gift from her parents, was due to reach the three-month milestone only nine days before settlement. Certain that she would need to apply for an extension, Connie spoke to an accredited finance broker to see how she should go about it.“She had wanted to request a two-week extension on settlement, but I told him not to get the extension,” broker says, “it would have involved substantial penalty interest”.

Rather than having Connie foot a $400 per day bill for an extension, the broker jumped into organising a loan, using the strong relationships and knowledge gained over a decade in the industry to hurry the processes along.“What I did was look at the different panels and the different policies, I called the BDMs and sent detailed scenarios to three lenders so that there were a few options in case one didn’t work out,” the broker explains.

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Explainer: fixed-rate loans

Explainer: fixed-rate loans

When purchasing a property, borrowers can decide between fixed-interest loans that maintain the same interest rate over a specific period of time, or variable-rate loans that charge interest according to market rate fluctuations.

Fixed-rate loans usually come with a few provisos: borrowers may be restricted to maximum payments during the fixed term and can face hefty break fees for paying off the loan early.

 With interest rates at an all-time low, taking the option of locking in an interest rate on your home loan to guard against possible future fluctuation may be attractive. However, it pays to know the ins and outs of fixed-rate loans before committing to one.

However, locking in the interest rate on your home loan can offer stability.

“For those conscious of a budget and who want to take a medium-to-long term position on a fixed rate, they can protect themselves from the volatility of potential rate movement,” the finance broker says.

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Guaranteeing your child’s loan

Guaranteeing your child’s loan

Rising house prices are making it increasingly difficult to enter the market. Parents who guarantee their children’s loans can help, but it is important to understand how this can impact the parents’ retirement or investment plans.

Being a guarantor generally means using the equity in your own property as security for your child’s home loan. It can help a first-home buyer to secure finance for a property they can afford but may not have a large enough deposit for, and to avoid the added cost of lenders mortgage insurance.

The risks You may want to help your child but it’s important you don’t go into the transaction blindly. The main risk of guaranteeing the loan is that, depending on the structure of the guarantee, you could be liable should your child default on the payments, either by taking over the repayment schedule or handing over a full repayment. If you can’t make the payments, the lender may sell the home used as security. If this is still not enough, the lender may also require you to sell assets to meet outstanding debt.

Another major risk is a bad credit rating if default occurs. Plus, if you need to borrow money for another purpose, your property cannot be used. If you want to buy an investment property, you can’t use the equity in your home because it’s already tied up in the child’s loan.

Minimising the riskThere are ways to minimise the risks. The most common is using a monetary gift or private loan. It involves borrowing money against your property in your name, and then gifting it to your child. Another way to avoid the risk is to buy the property jointly with your child. This means your name is on the title and you have a certain percentage entitlement. When it comes to guaranteeing a loan, it’s always sensible to speak to a professional. You should also consider asking a legal professional to draw up a formal loan document outlining all conditions of the loan, interest rate and expected repayments.

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Explainer: interest-only loans

Explainer: interest-only loans

Borrowing to buy a property and repaying only the interest for a set period can be a great choice for some, beause interest-only loans can offer the right candidate financial flexibility while they invest. There are, however, some very important risks to take into consideration.

With interest rates at historical lows, interest-only loans may sound more appealing than ever because they offer the opportunity to enter the property market with lower repayments. In saying that, care must be taken, because interest-only loan repayments do not pay down the actual purchase price of the property or reflect a realistic repayment on a standard mortgage.

 “If you’re only repaying the interest on a loan, you’re not building up the equity on your home during that period.”

For an interest-only loan to be part of an effective property investment plan, borrowers must be comfortable that a property’s value will increase substantially. If the value doesn’t increase by more than the interest paid, they may end up losing out on the equity front.

Eventually, interest rates will rise again as the market ebbs and flows and, once a loan reverts to principal-and-interest repayments, borrowers who are unprepared may find themselves in a financial struggle.

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The perfect property at an affordable price - it’s not a myth

The perfect property at an affordable price - it’s not a myth

So you’ve found your dream home, but it’s in need of a little TLC. While others may see this as a deterrent, this is actually a great opportunity to nab the house of your dreams at a price tag that’s within your means. Here’s how to tactfully negotiate the price without ruining your chances of securing the property.

• Never enter a negotiation empty-handed Whether it’s hiring inspectors for a building and pest report, or obtaining quotes from tradespeople, obtaining facts and figures will give you ammunition when requesting a price reduction.

“Even if it costs you extra, it’s worth getting all the information before making your offer. People often underestimate how much repairs will cost,” says the real estate agent.

• Separate your emotionsThe most tactful way to negotiate is to eliminate all emotions, advises the real estate agent. “Try to separate yourself from the outcome and present your side logically. The owner is under no obligation to accept what you offer, no matter how well you present your points. So if things don’t go your way, being negative won’t do you any favours.”

• Remember this is someone else’s houseNegotiation is a two-way street, so in order to come to an agreement, concessions will have to be made on both sides. “Try to understand what is important to the owner,” advises the real estate agent. “What can you offer to counteract the price reduction you’re after? Perhaps a longer settlement period so they can find a new home? It’s little enticements like this that can often be much more valuable than a couple of extra dollars.”

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Small business finance without the bank

Small business finance without the bank

It can still be difficult to make a case to a bank when looking for finance to start a new business or invest in the growth of an existing one. The good news is that applying for commercial finance through a bank is far from the only option.

Personal loansA relatively young enterprise that doesn’t have a track record of success may not be looked upon favourably by banks, which make lending decisions based on risk. A lack of documented history doesn’t aid a business loan application, so for those who still want to go through the bank they use for transaction accounts, a personal loan could be the way to go.

The downside may be slightly higher interest rates and lower loan amounts, but a personal loan can provide a good buffer for start-ups and application is relatively easy.

Private funding Private funding is when individuals lend generally through a trust account. While it can be a little more costly than the average business loan, it carries the advantage of flexibility.

“If it’s a ridiculously difficult deal to put together, with no banks wanting to touch it due to not having the appropriate documentation or being outside LVRs” says the finance broker. “In saying that, however, I would strongly recommend speaking with a broker who has experience in private lending because, as a consumer, you’re kind of flying blind and you need to know that they’re going to be trustworthy.”

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How to refinance to renovate?

How to refinance to renovate?

Refinancing your assets to renovate a property is a significant decision that will hopefully improve your standard of living or add substantial value to your property. It isn’t as straightforward as you might expect. The type of renovation proposed goes a long way to dictating the loan required. If the wrong loan is chosen, you could be left with a pile of unexpected debt.

Know your budget

Before considering refinancing, you need to have a clear idea of your budget.

If you underestimate your budget, you run the risk of getting knocked back from your lender, according to finance broker.

“I know a lot of homeowners who have estimated a budget of say $100,000 to do renovations, only to discover it will cost a lot more,” the broker says

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Why property investors need savings

Why property investors need savings

Urgent maintenance is an unavoidable aspect of being a landlord, so having a cash buffer set aside will help you deal with any unexpected problems.

When renting out an investment property, having access to extra cash is vital for two reasons:

●          to cover the cost of the mortgage should you lose your employment or rental income; and

●          to cover the costs of maintaining the property, giving it the best chance of remaining tenanted

Ideally, your buffer would sit in an offset account against your mortgage, so that you have immediate access to the money while at the same time reducing the principal, and therefore the total interest payable on, your loan.

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Why your business loan was rejected

Why your business loan was rejected

Due to the risks involved, strict guidelines are imposed on business finance, so securing approval can be difficult. Here are a few mistakes to avoid to increase your chances of approval.

Not knowing your credit score

Many consumers may not realise the importance of a credit score. Not only is it taken as a reflection of your ability to make repayments, it also highlights your financial history which is why understanding what it is and how it can be improved can be vital.

“I have seen cases where businesses were oblivious that they had a credit default until it was time to submit an application,” says finance broker.

Lack of planning

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Where there’s a will, a Credit Adviser can find a way

Where there’s a will, a Credit Adviser can find a way

There are many paths to successfully financing a property purchase. Recently, an expert finance broker helped a young couple, who had nearly given up hope, realize their dream.

If at first you don’t succeed, ask more questions. That’s the motto of finance broker, who doesn’t let a history of refusals stand in the way of securing the right loan.

Recently, Jim and Jenny Stewart, who were keen to buy their first home but had had their loan application rejected twice already, were referred to him.

“They didn’t think they had a chance of getting the amount they wanted, and I wasn’t sure I could get them approval either, but I started asking questions,” says the finance broker.

“It’s not enough to gather only the information required to submit an application; it’s important finance brokers know what borrowers’ plans for the future are, whether they plan to renovate or rebuild, for example, and what their background is.”

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How to invest on a low income

How to invest on a low income

While you may not need a six-figure salary to invest in property, those who earn a relatively low income will require a little more creative thinking to start a portfolio. Here are some tips to help you get started.

Find an investor-friendly loan

The challenge for low-income earners, explains the finance broker, is the time taken to save for a sufficient deposit. Some lenders require a higher deposit for an investor than is required for an owner-occupier, so seek out a lender and loan that is investor friendly, or consider living in the property for a period after the purchase before converting it into an investment property as your portfolio grows.

In any case, having at least 10 per cent of the property’s purchase price as a deposit will not only increase the likelihood of loan approval, it will also increase your borrowing capacity and lower the risk that you will have to pay lenders’ mortgage insurance (LMI).

Prove your financial discipline

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Tiny houses

Tiny houses

It’s easy to understand why we look for the largest, most prestigious properties we can afford – we are constantly urged to define our success by our possessions: bigger, better, newer, faster, shinier. A relatively recent counter-movement, however, urges lower impact, fewer goods and less consumption, and at its core nestles the tiny house.

With the price of property ownership creeping skyward across most parts of Australia and leaping into the stratosphere in others, a big home isn’t always affordable to buy. Add the cost of energy and living, and big isn’t always affordable to maintain, either.

With the boom of environmentally friendly housing and a return-to-basics design mentality, a trend for micro housing has cropped up, producing some positively diminutive living arrangements.

Whether it’s a one-room cabin with a loft for a bed space, a tree house or a converted shipping container, the trend in minimalist shelter has well and truly skyrocketed.

Despite how innovative those ideas are, there is no denying that they aren’t suited to everyone. What could apply broadly, however, are their lessons in downsizing. Not only can people save money, but they can save time and energy, too. It’s a good idea to consider the following benefits of smaller housing before buying the biggest home you can afford.

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What to look for at an open house

What to look for at an open house

There’s an old saying that you should never judge a book by its cover, and this is true for houses – after all, who would buy one having never seen more than the front door? Open inspections are opportunities to really flick through the pages, and here’s how to take full advantage.

Use your sensesSniff, peer, listen and feel as much as you can. Your nose might pick up a mouldy or musty smell that may mean damp. You might spy small or hidden cracks that could mean structural issues. That clattering sound when water is running? That can be a sign of serious plumbing problems.

Don’t be distracted by the beautiful blingAnyone can invest money in pretty cushions and lamps to set off the house. Or bake some cookies just as the open inspection starts so the house smells cosy and homey. But when buying property, you’re buying the sausage not the sizzle, so look past the perfectly presented and lit lounge room to the size, shape and placement in the floorplan of the actual room, and imagine how you will use it.

Look upThat means checking the roof on the way in and looking at the ceilings in the rooms. Damp and leakage issues are costly and notoriously hard to fix. And once the rot sets in, it’s there to stay.

That kitchen and bathroom advice It’s true what they say. If these two rooms aren’t how you would like them to be, are you prepared to live with it or spend the money required to transform them? Bathroom renovations will be upwards of $10,000, and probably a lot more.

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When should I find a finance broker?

When should I find a finance broker?

When saving a deposit to buy a home, many people have a goal amount in mind that they need to save before they meet with a mortgage broker who will help them secure the finance.

If this is you, you’re doing it wrong. From day one, when you first think ‘I could maybe buy a house if I worked hard and saved a lot’, you’re ready to have a mortgage broker on your side.

A mortgage broker’s knowledge of the loan and property market will help you work out how much you will be able to borrow, which determines the size of the deposit you will need to save.

They will also be able to help you develop a realistic timeline to save your deposit and find ways to pay down debts faster, and provide creative solutions that will help reach your goals sooner.

You may also be pleasantly surprised to find that you are closer to your goal than you thought. The tools in a mortgage broker’s belt that can help you realize your dreams more quickly and efficiently include lender’s mortgage insurance, specialist lending products, land loans and, for investors predicting significant rises in property prices, interest-only loans.

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A home of one’s own

A home of one’s own

Are you flying solo and starting to think that buying a property will never be possible? There’s really no need to wait for a knight, or lady, in shining armour to come along, as securing finance on a single income does happen.

Of course, just as if you were a couple, your borrowing capacity will depend on your income and commitments. But there are some differences. A single will probably have different requirements of a property than a couple would. So consider: are you looking for a residential or investment property? What kind of deposit are you considering? Do you have dependents or children?

You may also need to take extra precautions without a second income to fall back on. A mortage adviser recently helped a single first-home buyer who wanted to live in the eastern suburbs in Sydney. She decided to downsize from her large rental and buy an affordable studio in which to live.

 “We looked at how much she’s paying in rent and what she’s currently saving. Then we looked at what was a good, comfortable spend for her and worked backwards from that,” the credit adviser explained. 

 “It wasn’t as if she had to sacrifice everything, she just went smaller. As a single person, she decided she’d be happy in a studio, as opposed to a bigger apartment in a location she wasn’t as happy with.”

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Featured

Fixed v's Variable

Fixed v's Variable

This is a question that is asked by friends and clients on a regular basis. Before choosing one or the other, first of all it is important to understand the difference and the mechanics of both of them and what impact they can mean to you and your mortgage. Another important factor is the RBA cash rate and the banks standard variable rate.

The Reserve Bank of Australia and the bank standard variable rate

It is important to know with all rates not just variable, that although the RBA may reduce rates (most commonly in increments of 0.25%) the lender you are with may not pass on that full cut. This is a topic that has been in the media quite a lot in recent times as none of the major lenders have passed on the full RBA cut in the December decrease and this has been quite a common theme in the majority of the other three cash rate decreases in 2012 (The cash rate dropped a total of 1.25% in 2012). The banks normally make their decision within 2-3 days of the RBA decision and pass on their decision a couple of weeks later. At present the only major bank that reviews their rates independently is the ANZ, which announce their reviews on a monthly basis. Media reports state that the other major banks will follow suit in this approach. 

Currently the cash rate is at it lowest in over 3 years with  NAB forecasting three more cuts in 2013 NAB Economist tipping three more cuts in 2013. The last increase was in 2009 which had kept the cash rate at 3% for 3 months until its October increase.

At present the gap between the RBA cash rate and the banks standard variable rate is the greatest it has been in 19 years with the banks blaming the cost of off shore funding for this. 

Variable rate mortgage

A variable rate mortgage will move up and down with the Reserve Bank of Australia (RBA) decision on their cash rate and therefore is also commonly known as a floating rate. The variable rate is the most common type of mortgage in Australia and the one most potential borrowers look at when searching for finance. The variable rate loan normally has many features linked to it such as an offset account, redraw and the ability to pay off additional funds with no extra charge. You normally have the ability to pay out your mortgage without a large fee. The Australian government has recently imposed new laws so lenders can not charge high exit fees, although these have stopped the lenders still impose a fee of approximately $250-$350 as a "legal" or "administration" fee.

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