• Planning
• Arranging
• Selecting
• Buying
• Settling

1. PLANNING

Most banks and lenders will need to see your savings history for the last 6 months to show that you can make the repayments.

Look around at the sort of houses you want and then look around at the sort of houses you can afford. Find out what the monthly repayment amount will be. When you know what that is, lets say $500 per week.

Start up a separate account and put aside that money every week for 6 months. This shows that you have the discipline to save and the ability to make the repayments.

TIPS

Many first time buyers are unaware the impact having a credit card, store card or personal can have on the amount you can borrow. It can mean the difference between a 3 or 4 bedroom house. It can be The secret is to reduce or limit your consumer debt to as little as possible. This includes car loans, personal loans, credit cards, store cards. Any other debt you may have. You must declare this when you apply for a home loan. If you don’t your application could be turned down because you didn’t state all of your debt.

Don’t think you can get away with it either. In Australia every time you apply for credit (including your mobile phone account) the credit provider access your credit file or makes an enquiry. S o everything is there.

2. ARRANGING

Arrange and receive approval for your loan. Get a written preapproval for finance from your bank or broker. This is free and gives you peace of mind.

Calculate the costs of purchasing a home. Different states have different costs associated with purchasing a home. Any loan over 80% of the value of the property will attract LMI. This is known as Lenders Mortgage Insurance and is calculated depending on the contract price of the property. As a general guide if you wanted to purchase a $300,000 house with a 10% deposit you would need in additional funds to cover the costs associated with the loan. Ask your bank or mortgage broker to provide you with an estimate of fees and charges.

Select a Solicitor or Conveyancer to act for you at settlement. Unless you have a conveyancing or legal background and feel you can save on this cost this is one area I would never advise people to represent themselves.

Ask your bank or Mortgage Broker if you are eligible for the First Home Owners Grant. In Queensland the amount is $7000.

TIP: Whoever is buying the property (the name/s on the contract) must NEVER have owned or had partial ownership of a property ever.

Past ownership makes you inelible for the grant. If you think you need this money to move then find out first if it will be available. Your Nova Star mortgage broker can handle the whole application for you.

3. SELECTING

Choose a suburb/area that suits you. Consider transport, schools, where you work.

Search for properties online – this is a much more convenient way to find out if you are being realistic

Make a short list of things you MUST have in your new home. For example a fence, if you have small children or a pet. A friend of mine who was 6ft 3 had to have a home with high ceilings as he would bang himself on the head and walk around bruised, not to mention the headache.

Contact real estate agents in your local area and build a rapport. Choose one or two that you are totally comfortable with.

Attend open homes – get a feel for what the market is doing.
Make a short list of properties

AND…………

SELECT YOUR HOME
Believe it or not you’ve done all the hard work now but there’s still a few more things to consider.

4. BUYING

Contact your bank or Nova star Mortgage Broker to confirm your finance is in place before you make an offer

A valuation of the property will be required

Make an offer

Order a building and/or pest inspection

Your Nova Star broker will arrange a property valuation and formal approval of the loan

If approved, pay your deposit.

5. SETTLING

Your solicitor or conveyancer will perform a final search on the property and its title

Settlement will occur on a date agreed by you, the seller and the lender – The date is always specified on the contract.

Obtain keys and take possession

Make sure your loan repayments are organised

Relax and enjoy your new property!

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You can’t just do this with any loan you have, when the loan is negotiated or applied for, you need to ask your broker for an ‘interest in advance loan’.

An interest in advance loan is similar to ‘fixed rate, interest only standard residential home loan’ EXCEPT you pay the interest in advance.

Some lenders will also offer interest in advance frequency options such as yearly, half yearly, quarterly and monthly – thereby spreading the payments over a period of time.

WOW – why would you do that? Well this brings us to the first question. How can this benefit me?

While the initial outlay may seem great many investors are simply unaware of the tax and interest saving strategies this gives them.

Prepaying your interest is a way that you can achieve a discount from your lender you can also accelerate the tax deductions that come from this expense by bringing them in to the current financial year.

Some banks offer around a 10-20 basis point discount. In fact last year one of the leading banks offered a 30 point discount on the usual fixed rate investment loan.

As we have already established these types of loans do not differ much from the standard fixed rate, interest only residential home loan’, this means the loan is fixed for a certain period of time usually 1 3 5 10 15 years. At the end of the ‘fixed’ period though the loan must be repaid in full or renegotiated. This is the case for all fixed rate loans whether they are interest in advance or not.

There will be significant early repayment fees for discharging the loan before there fixed term has expired although by fixing the rate you get some certainty in these difficult times. It is also worth pointing out that these loans do not have all the features of a standard home loan. The most important one to remember is that there are no access to funds by way of redraw. It is however possible to split your loan – thereby getting a fully featured loan on part of your loan. The usual minimum is $30,000.

These loans can definitely be of benefit but a healthy cash flow and strict savings plan are needed to meet the interest payments. As always you should consult your accountant or finance professional before making any financial decision as individual circumstances differ. We also recommend that you get information about the new tax guidelines from your accountant or logon to www.ato.go.au

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Cash is King and if you need more liquidity fast but your first mortgage lender will not advance any more or cannot act quickly, you might be in unforeseen trouble.

A Second mortgage might be the best possible option at this difficult time.

Like many other countries of the world, the mortgage market in Australia has tightened considerably and extensions or increases to existing facilities that might have been offered 12 months ago are simply not available today. Many people in Australia, especially those in small business have been able to overcome short-term financial hazards or “cash crisis” and improve their position through a short-term second mortgage.

Second Mortgage

You may or may not have heard about second mortgages. In simple terms, a second mortgage is made against the same property, which is offered as a collateral in the first mortgage but usually to a different lender. Hence, it is considered subordinate to the first mortgage and ranks behind the first mortgage in terms of security.

The interest rate of second mortgage is higher than the first mortgage. This is because, in case of default, the first mortgage is paid out first then the second mortgage is satisfied from the remaining equity.

Usability of Second Mortgage

In a nutshell, a second mortgage is most beneficial when the borrower needs finance for a specific purpose for a short period of time and they can see how the second mortgage finance can be repaid in the short term. It is a good source of finance for opportunistic investments, or to satisfy an urgent unexpected expense. It is often used as a short-term cure for a business cash crunch or even to take advantage of a business opportunity that presents itself where the business operator can see that he or she can make money, IF they have some money NOW!

Other reasons for a short-term second mortgage might include the need of improvement of existing homes prior to sale, or bridging finance for the purchase of a new property prior to the sale of an existing property.

Overview of mortgage market in Australia

The Australian mortgage market witnessed a tremendous boom during 2003 and 2004. However, earlier this year the market observed a sharp decline in its rate of growth with 12% growth being recorded in contrast to 22 % in 2004.

An analysis conducted by InfoChoice and The Sheet estimates that the Australian mortgage market presently stands at $922 billion. It has been observed that this estimate is around three times greater than the report of Reserve of Australia. It is noteworthy that this study is also 12% bigger than the all-banks estimate in the mortgage industry of Australian Prudential Regulation Authority.

As a rule all big banks play a major role in the market, but usually only provide loans against first mortgage security and do not operate in the second mortgage space. Finance and mortgage brokers originate an increasing share of this Australian mortgage market and these brokers can usually source either first or second mortgages from a wide range of lenders.

Mortgage Industry Growth in Australia

(Source - http://www.infochoice.com.au/portals/0/State%20of%20play.pdf)

Rise of Second Mortgage in Australia

As traditional lenders become more reluctant to lend to existing customers due to tighter credit requirement and liquidity limitations continue in the banking system, more and more borrowers with a need for a short term remedy are turning to a second mortgage lenders to solve their temporary or short term liquidity problem to take advantage of opportunities or to solve their short terms problems.

To be eligible for a second mortgage, you must have surplus equity in your current property. This means that you must owe less with your current mortgage than the value of the property. The second mortgage lender will need to be comfortable that there is a good commercial reason for the loan and that there is an “exit strategy” for the loan. This means that the second mortgage lender can see how the loan is coming to be repaid through some event or process that will satisfy the advance and the charges for the loan.

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