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Six tips to cracking the housing market

Six tips to cracking the housing market

Interest rates might be at an all time low but since the global financial crisis, most banks have actually tightened their lending criteria, making it a lot harder for some people to get in to the property game.

The days of getting a loan with no deposit are pretty much over, with most banks upping the minimum deposit amount to as high as 20 percent, putting home ownership out of reach for some Australians.

Why are the banks asking for bigger deposits?

Skyrocketing house prices in some capital cities, particularly Sydney and Melbourne, have seen the property market run hot.  This has made the government regulator, APRA, nervous, and not without reason – no-one wants the housing bubble to burst and send our economy into a tail spin.

As a result, APRA has told lenders to keep a check on risky loans, such as:

  • loans with small deposits
  • interest-only terms for owner occupiers
  • loans with very long terms; and
  • high loan-to-income loans.

Tips for anyone wanting to crack into the housing market

1. Save up a decent deposit

A deposit of at least 20 per cent is ideal.  It means you don’t have to pay lenders mortgage insurance, which can be up in the tens of thousands.  Plus, it means you are starting from a good, stable base from which your mortgage repayments will be manageable.  A lot of lenders now offer lower interest rates for people with sizeable deposits, so you’ll save there as well.

2. Look for something that’s within your means

If you are just starting out in the property market, start slowly.  Look at how much of a deposit you have, and how much you can afford in monthly repayments first.  Then add a buffer of at least 2 per cent, if not more, on to the repayments.  Interest rates are an all time low right now so the one thing you can be sure of is that they are going to go up, and probably quite a bit. Historically the cash rate over the last 20 years has averaged at 7 per cent so bear this in mind when you are crunching the numbers.

3. Reduce the number of credit cards you have

Large amounts of credit card debt can affect your borrowing capacity and potentially your credit rating. It’s also counterintuitive to helping you save, rather than spend, so cut those cards up and stick with a debit card linked to a transaction account where it’s a lot harder to get yourself into trouble.

4. Build up a positive credit report

Since last year, lenders now access both negatives and the positives of a person’s credit history.  This should be good news for most people because it means you can actively work towards building a positive credit history, which will help you secure a loan.  To build up your credit rating start by paying your bills on time.  A fixed address and a permanement job are also crucial to showing a potential lender you are a trustworthy borrower.

5. Do your research

Find out which loans require a decent deposit of, say, 20 per cent, and which ones will still let you borrow with a smaller one.  Bear in mind that you’ll probably pay higher rates for the one that allows you to make a smaller deposit. You might actually be better off waiting til you have a bit more in the bank and choosing a lender with one of the lowest interest rates.

6. Consider using a guarantor

If you don’t have a big enough deposit for a home loan, you might want to consider asking your parents to be a guarantor.  It will help you secure your mortgage and avoid lenders mortgage insurance.  Bear in mind though, going guarantor isn’t as simple as signing a couple of forms – if you find you can’t meet your mortgage repayments the bank will then turn to your guarantor to come up the money.

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Learn more about home loans

How much deposit do I need for a home loan from NAB?

The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.

Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.  

Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.