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How to buy without a 20% deposit

How to buy without a 20% deposit

 

When you consider that a small flat in Sydney could set you back half a million dollars at the moment, saving a 20% deposit to buy that flat – $100,000 – can seem an insurmountable task. That’s where insurance can help.

Lenders mortgage insurance (LMI) may be an added expense, but it offers buyers the opportunity to dive into the property market earlier, without saving up an entire 20 per cent of the property’s purchase price as a deposit.

What is it?

LMI protects the bank or lender, should a home loan go into default, guaranteeing that the lender will get its money back if the property needs to be sold and there is a shortfall in repaying the loan.

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First meeting with a broker

First meeting with a broker

If you’re looking for a home loan but are inexperienced with finance brokers, attending your first appointment with a broker can be a nervous experience. Getting a home loan, after all, can be quite complex for a first-timer. There are lots of brokers around and there is a lot to learn so it pays off to be prepared.

A good starting point is to familiarise yourself with the expectations of the first appointment between brokers and yourself. Your broker is very likely to ask you about your medium and long-term financial goals, the amount you want to borrow, comparisons of your home loan options and your understanding of the fees, costs and conditions attached to home loans. Knowing the direction the appointment will likely take lets you participate more actively in the conversation. This means you can better articulate your needs to your broker.

It’s also recommended that you give some consideration before the meeting to the types of questions you wish to ask your broker. Questions that can be of use include such things as loan types (such as term, repayment options and interest rate types), the types of ongoing fees attached to various loans (such as early exit, late payment, break and redraw fees) and the typical timeframe for a loan settlement.

These questions might pop into your head spontaneously during the meeting but preparing them in advance is a good way to refine them. By doing so, you are in a position to get more specific information from your broker.

It is common practice, too, for your broker to conduct a needs assessment prior to your face-to-face appointment – so you may be asked some pre-appointment questions.  To assist in answering these, you’ll need to supply information about your employment history, assets and expenses.

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Buying a tenanted investment property

Buying a tenanted investment property

There are plenty of upsides to buying an investment property that already has a tenant, as well as a raft of risks. Here’s how to minimise them.

Steps you can take to minimise your risk:

Make sure the bond has been lodged properly. Your agent will arrange for the bond guarantee to be transferred into your name on settlement.Check the property condition report, making sure that it is a complete and accurate record of the property as you inspected it.Ensure there are no rental arrears. If there are, or if a landlord has agreed that rental arrears can be taken out of a bond payment, stipulate that this amount is deducted from the purchase settlement amount.Ask the leasing agent about the tenants and their payment record. You cannot demand that you meet the tenants, but attending the open house will give you a sense of how they live in the property. If possible, sight the tenants’ original application for the property and rental ledger.Look at the yield for rental properties in the area and compare them to yours. You won’t be able to increase the rent until the end of the lease.Be aware of any concessions or conditions that are either in the lease or have been agreed with the landlord or property manager, because these will become your responsibility. For example, does rent include electricity or other utilities? Has the landlord agreed to install a new oven or paint a room?

Of course, if you love a property but have doubts about the tenants, the lease or the managing agent, all is not lost. You can easily change the managing agent when you settle. You can also make vacant possession of the property a condition of settlement. You may need to wait until the lease expires to settle, but you aren’t taking on the previous owners’ problems and responsibilities.

If your only problem with a tenanted property is the rental yield, keep in mind that increasing rent on a good, long-term tenant may well drive them away anyway, so do your sums. Work out whether the amount you’d like to increase the rent by equates to more over the year than the lease fee plus any rent lost if your property is vacant for a few weeks.

Speak to CBM Mortgages today and they can help you finance your investment. <This email address is being protected from spambots. You need JavaScript enabled to view it.>

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Is a family guarantee right for you?

Is a family guarantee right for you?

Entering the property market is no easy feat for a first homebuyer, but even parents who aren’t prepared to hand over cash for a deposit may help by being a guarantor on a loan. Before taking the plunge however, it’s crucial to be aware of the implications involved. Here are three questions to ask yourself to see if a family guarantee is right for you:

1. Am I financially fit to be a guarantor?

The very first thing you should be certain of is whether or not you are in a financially capable position to pay off the loan if the borrower finds that they can no longer do so. There can be many disruptions to an income, such as loss of employment or a serious accident, and some types of guarantor loans hold the guarantor legally accountable to ensure the mortgage is paid off.

“You need to be in a strong financial position and have enough equity in your property to be a guarantor,” says a finance broker. “Some banks even want to make sure that the guarantor can service the full debt as well, so it’s always advisable to get independent legal or financial advice if you’re considering it.”

 2. Do the benefits outweigh the risks?

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How to find the right lender for you

How to find the right lender for you

Every client has different requirements and circumstances - a mortgage broker can help you find the perfect match 

When Craig from CBM Mortgages met with husband and wife duo, Amanda and Mark, he was told that their vendor had requested them to waive their right to a cooling-off period.

“While Amanda and Mark had pre-approval with one of the major banks, they didn’t have formal approval, and this could only be effected after contracts were exchanged,” Craig explains. Unfortunately, their lender wouldn’t issue formal approval without conducting a property valuation first, and to do this, the lender required an exchanged contract of sale. It was a catch-22 situation.

While Amanda and Mark still had the traditional six-week settlement period to organise formal approval, they didn’t want to exchange contracts. If the bank decided at the 11th hour not to approve their loan, Melissa and Andrew ran the risk of losing their 10 per cent deposit.

They explained their situation to their lender, but the bank did not want to budge on its policy.

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How to maximise returns on an investment property

How to maximise returns on an investment property

When purchasing an investment property, there are a number of factors that could increase or reduce your potential return on investment. In this case it's not just location, location, location.

When considering a property for investment purposes, the most important question to ask is 'will it be attractive to tenants?'.  But how do you know what will appeal to someone you've never met? Settling on a handful of locations is a good start. “Young families and couples are the ones that drive capital growth and so a location that is within a reasonable distance to schools, entertainment, transport, and an employment hub is one to look out for,” says the finance broker. Other ideal factors are a low vacancy rate and relatively high rental yield.

Although location plays a major role, it's by no means the only defining factor. “There is a mistruth a lot of people subscribe to when selling investment properties, which is to disregard the quality because you don’t have to live in it,” advises the finance broker. “You have to buy a homeowner quality property, because someone has to live in it,” he says. “And when buying an investment property, you have to have an exit strategy, which will generally involve selling to homeowners as well as investors.”

To get the most value, you need to think about the demographic of renters who are likely to be living in the area. “You have to match the property with the area,” says the finance broker. “If you put a good quality, decent sized, one bedroom apartment in the inner city, it would be a great investment, however if you put it 30km out, it wouldn't garner as much interest.”

When investing in any kind of property, be wary of any danger signs. One of the biggest mistakes Australians make is not knowing what their cash flow is. “Bad cash flow is worse than paying too much for the property,” advises the finance broker. “It is vital to know how much your chosen property is going to cost after tax, every week after you settle. There’s no point in buying a top quality property if it’s going to send you broke.”

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Expert advice can lead to serious savings

Expert advice can lead to serious savings

 

Having a mortgage expert on your side can be the key to getting your finance over the line, and may save you thousands in interest and fees.

When Philip was offered the opportunity to purchase his mother’s property in Tasmania at a favourable price – just $180,000 for a house worth $350,000 – he wanted to take the opportunity to consolidate other debts. Using the equity available in his own property, he applied to refinance to cover both the debts and the favourable purchase, expecting to have all the loose ends tied up relatively quickly.

This was not the case. When Philip tired of waiting for the bank to sort out the valuation on the Tasmanian property and decide whether it would approve the loan, he visited an MFAA Approved Finance Broker.

“He said it was taking forever, so he came to see me,” says Philip’s finance broker.”

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Buying a house with HECS or HELP debt

Buying a house with HECS or HELP debt

 

Paying off your education is no reason to put off buying property.

You can remember it now: sitting in a chair at the back of the lecture theatre, chatting to your friends and ignoring the debt that each day at university was plunging you into.

But now you’re older and wiser, and reality has set in. You want to buy a property, but you’re unsure how your student HECS/HELP debt could impact your ability to take out a loan.

When you apply for a home loan, you’ll need to reveal information about your liabilities, poor credit ratings and any other debts you have. This is where your student debt can affect things.

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When was your last home loan health check?

When was your last home loan health check?

Circumstances can change, leaving your home loan less suitable than it was originally. A home loan health check can reveal if you’re paying too much or if there is a product better suited to your requirements.

What’s involved?

Your finance broker can do a full home loan health check for you either in person or over the phone. They will check if your loan is still competitive and still suited to your individual needs.

Having an expert do this for you can also take the stress out of the process for you. It is advisable to get this check done at least once a year, or whenever your circumstances change.

Questions to ask

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Vacant Land Loans

Vacant Land Loans

Whether you are buying land for an immediate build, as an investment or for a ‘one day I will build and live here’ dream, a vacant-land purchase can be financed by a range of mortgages.

If you are planning to build immediately, or at least fairly soon, a construction loan might be the best option. Most lenders demand that building on a construction loan must start within a specified time, usually between one and three years, depending on which lender you use and whether the property will be owner-occupied or investment.

This mortgage type allows you to draw down segments of the loan amount in stages as they are needed – for the land purchase and then for the stages of construction – which saves you paying interest on the entire loan amount when you don’t need to be.

If you don’t plan to build immediately, and you want the loan for the land without any time pressures, a vacant land loan may be the best option.

While regular mortgage types can be used for the purchase of vacant land, most lenders also offer vacant land loans. Most will go up to a 30-year loan term and finance up to 90 per cent of the land’s value, and some go as high as 97 per cent loan-to-valuation ratio (LVR). Lenders’ mortgage insurance (LMI) would still most likely be payable on any LVR higher than 80 or 85 per cent, depending on the lender.

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Comparison rates explained

Comparison rates explained

Comparing apples with oranges doesn’t make sense. To make finding the right loan easier, and to make advertised rates as transparent as possible, we have comparison rates.

You’re looking for the best mortgage deal and you see an ad. It shouts ‘3.6% INTEREST!’ and, underneath that seemingly too-good-to-be-true rate, ‘7.8% comparison rate’. What does this mean?

“Because a comparison rate includes all of the fees and charges that can be applied to a home loan, it helps to show customers what the true cost of a loan is. In some instances, lenders offering the lowest rate may not actually boast the cheapest loan, which is what a comparison rate shows,” explains Mortgage Choice Head of Corporate Affairs, Jessica Darnbrough.

“In 2003, an amendment was made to the Uniform Consumer Credit Code (UCCC) that required comparison rates to be included in advertising. This change was made so that customers were not easily misled when it came to home loan interest rates.” The UCCC has since been replaced by the National Credit Code and the comparison rate requirement remains.

This allows consumers to compare apples with apples, to an extent. It does make it much simpler to hold two loan products side by side and, regardless of whether one has a slightly higher interest rate and no fees while the other is a super-low interest rate with high fees, see at a glance which one is the better deal financially.

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Things to consider before Renovating

Things to consider before Renovating

The decision to renovate is a common sticking point for homeowners, who can spend hours weighing up the cost benefits. 

Whether your motivation is to add value to your property or to add a touch of your personality to the home, renovations are expensive and debt often follows.

By working with a mortgage broker you will be able to find solutions that benefit your long-term goal, rather than hindering future plans.

While CBM Mortgages can’t assist you with forecasts on future property values, we can help you reassess your current financial position, run through your plans and future payments, and decide if you can afford to take on more debt.

Laying the foundations

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