Mortgage Brokers and the Application Process

What is the advantage of using a mortgage broker?
The key advantage to using a mortgage broker such as Atelier is that we will take a vested interest in understanding our client’s financial goals, so we can pair them with the most suitable home loan structure. We can help you understand your options by reviewing and comparing over 400 products from over 20 lenders, rather than you simply going to one bank and being sold only that bank’s products (or spending the time going back and forth between different banks).

We also empower our clients by educating them and helping them to overcome any fear from the home loan application process. We can walk you through the process step-by-step, liaising with your solicitor and real estate agent to make settlement less stressful for you. We then offer ongoing support and an alternative to the banks’ call centres when you need advice following settlement.

Once your loan has settled, our role continues – we provide regular reviews to make sure your loan meets your needs (which can often change) and will keep you updated on interest rate changes.

The best part is that all this is done at no charge for our clients.

Why is there no fee to use a mortgage broker? How do you get paid?
Our services are 100% fee-free for clients, as we are paid directly from the financial institution that your home loan settles with. In the interest of transparency and compliance, we disclose the amount of commission we are paid. While the rate of commission may vary from lender to lender, our focus is on ensuring the product suits our clients.

The assurance we give to our clients is that commission payments will never taint our lender selection – and our adherence to this policy is just one reason why our clients keep coming back to us, and are happy to refer their family and friends.

What can I do to strengthen my home loan application?
We encourage clients to provide as much documentation as possible and when completing a loan application form. This typically includes three years history regarding where they have lived and their employment. Our role is then to ensure every section is completed, as more information assists in obtaining a better credit score when your loan is submitted.

Some clients unknowingly have unpaid defaults, so it may be worth obtaining a copy of your own credit report online from www.veda.com.au. We can then address any credit-related issues with a lender and be proactive to have these addressed or even removed from your credit record.

Should I get pre approval?
We recommended our clients organise a pre-approval before they start making offers on properties they wish to buy. This ensures you can borrow the required amount and that real estate agents know you are a qualified buyer.

By securing a pre-approval, you remove some of the stress when you do purchase your property, as you’ll have already gone through the process of applying for a loan.

How long does it take to get approval?
A pre approval is a computer generated approval, which is not a thorough Conditional Approval. Lenders can provide a conditional approval within 2 – 5 business days provided we have all your supporting documents organised.

Costs to Consider

What costs should I factor in when purchasing a property?
To avoid any surprises, we encourage clients to have funds available for the following costs they may incur:

  • Stamp Duty: this is the most significant cost, and varies between state and territory governments. It is calculated based on your purchase price and depends on whether you are buying an owner occupied property or an investment property.
  • Legal/conveyancing fees: you can expect to pay around $1,000 – $2,000, based on the amount of work involved for your conveyancer. These fees cover all the legal fees associated with your property purchase, including title searches.
  • Building and pest inspection report: your conveyancer will usually arrange these inspections on your behalf during your cooling off period. Your Contract of Sale should be subject to the building and pest inspections, so if there are any problems identified you have the option to withdraw from the purchase without any significant financial penalties. A building report will cost about $1,000 and the pest report about $500. You will pay for these as part of your total invoice at settlement to your conveyancer, in addition to their conveyancing fees.
  • Lender costs: most lenders charge legal fees to help cover the costs of their legal work and settlement charges. We will let you know upfront about any bank fees you need to be aware of.
  • Mortgage Insurance costs: if you borrow more than 80% of the purchase price of the property, you’ll also need to pay Lender Mortgage Insurance.
  • Insurance: when you sign a Contract of Sale, we encourage you to take out building insurance as this is a lender requirement.
  • Disbursements: at settlement, you will need funds for the vendors’ prepaid bills such as council and water rates and strata if applicable. Your conveyancer will advise you of these costs prior to settlement.
  • Moving costs: don’t forget to factor in the cost of a removalist if you plan on using one.
How much do I need to save for a deposit?
As a general rule, if you are purchasing your own home you’ll require 5-10% of the purchase price as a deposit. If you are an investor, you’ll ideally require 10% of the purchase price, however it is possible to purchase with a smaller deposit.

We work with clients who have small deposits and put together options for them to consider such as:

  • Family Guarantees
  • Servicing Guarantees
  • Using rent as genuine savings.
How much money will I need to set aside for stamp duty?
Stamp duty is a state government tax based on a property’s selling price. Each state or territory has different rules and calculations; some states offer discounts to first home buyers. Stamp duty can be a significant additional cost when buying property. Use our stamp duty calculator to get an idea of what you will need to pay.
Am I eligible for the First Home Owner Grant?
First Home Owner Grants (FHOGs) vary from state to state. There are common requirements to be eligible such as being an Australian citizen or permanent resident, buying or building your first home in Australia, with the intention of occupying it as your principle place of residence within 12 months of the settlement and living in it continuously for at least 6 months.

If you’re purchasing the property with others, they must also meet criteria to qualify for the FHOG.

What is Lenders Mortgage Insurance?
Lenders’ Mortgage Insurance (LMI) is incurred when you do not have the full 20% deposit. LMI is one way of purchasing a property without having the 20% deposit and is typically required by most banks and financial institutions. LMI can be waived for clients in certain professions such as accountants, lawyers, or engineers.

With LMI, lenders may allow you to capitalise this onto your loan amount to a certain limit. It may also enable you to borrow at an interest rate that is comparable to a borrower who has a larger deposit.

What does Lenders Mortgage Insurance protect?
The Lender is the insured party, not the borrower, nor any guarantor. Where a claim for loss is paid to a Lender, the Insurer may seek recovery from the borrower, or any guarantor, for any shortfall amount.

LMI should not be mistaken for Mortgage Protection Insurance, which covers a mortgage in the event of death, sickness, unemployment or disability.

Managing Your Loan

What is a "Comparison Rate"?
When you see an interest rate advertised, you will always notice two rates listed. The rate on the right hand side is called the Comparison Rate. This interest rate is calculated by taking into account the interest rate plus fees and charges such as upfront and ongoing fees. It does not include:

  • government charges (for example stamp duty or mortgage registration fees) as these charges will be the same regardless of which lender or loan product the customer chooses;
  • fees and charges which cannot be calculated at the time that the Comparison Rate is determined; and
  • fees and charges which may or may not be charged, because they depend on some event which may or may not occur (such as fees for early termination or redraw).
What is the difference between fixed and variable rate loans?
Variable rate loans are those where the interest rate is flexible and moves up and down in line with the Reserve Bank movements and banks’ standard variable rates. Variable loans typically have the options of flexible and additional repayments, redraw facilities, and an offset account.

Fixed rate loans are exactly that – the interest rate is fixed for the term chosen. Typically fixed rate loans are more inflexible than variable rate loans where additional loan repayments are limited, offset facilities may not be available, and break costs/penalties can apply for paying out or closing a fixed rate before the duration of the fixed term.

What is a Self Managed Superannuation Fund (SMSF)?
A SMSF is a superannuation fund run by its member/s and is not externally managed. There are strict legislative and compliance requirements to consider when starting up own SMSF so we strongly recommend you seek professional advice from your accountant or financial planner (or both) before deciding to go down this path.

Clients with a SMSF can borrow money to invest in property and there are stringent regulations attached to SMSF lending. All members of the SMSF must be trustees of the SMSF and be fully involved in the decision making processes the fund undertakes.

What is an "Interest Only" loan?
An interest only loan is where the minimum repayments required are calculated on the amount of interest charged. Repayments are monthly, and if you continue to make interest only repayments, then the principal of the loan (i.e. the loan amount borrowed) does not reduce.

Most banks offer an interest only loan for 5 years before they require principal and interest repayments for the next 25 years. Interest only loans are common with investors who have a portfolio of properties to enable them to afford to service a greater amount of debt and to assist with cash flow.

What is an "Offset Account"?
An offset account is useful feature which links a transaction account to your home loan. By building your balance in your offset account, it helps to ‘offset’ your home loan repayments. For example, if your home loan balance was $250,000 and you have $30,000 in your offset account, you would only be paying interest on $220,000.

This $20,000 is not paid down into the loan as it is sitting in a transaction account. Clients can choose to pay down their loan or access the funds in their offset for personal use. It’s also beneficial to have your salary paid into your offset account.

This is a common feature with variable rate loans, however a small number of lenders offer offset accounts on fixed rate loans.

What is the difference between positive and negative gearing?
If your expenses are higher than the rental income you expect to receive, your property is “negatively geared”. If your rent is higher than your expenses, this is “positively geared”.

Some clients choose negative gearing to take advantage of possible tax benefits (because their taxable income is reduced by the amount of the loss), while other clients opt for positive gearing for cash flow purposes.

The strategy you choose is determined largely by the property selected, your loan structure and, ultimately, your financial goals. It’s worth discussing the tax implications of either positive or negative gearing with an accountant and a financial planner.

How often should I make my home loan repayments - weekly, fortnightly, or monthly?
If you intend to repay your home loan as fast as possible, then you can make repayments as frequently as you wish. By making more frequent repayments, we can show you have much interest you save and how many years you can take off your loan term.

Most lenders offer flexible repayment options to suit your pay cycle. However, if your repayments are Interest Only, then you will be making monthly repayments.

To discuss how you can structure your home loan to enable accelerated repayments, please get in touch with us. We would be happy to help you.

Can I consolidate credit card or other debts into a home loan?
This is a common reason many people refinance. The advantage is that you pay a much lower interest rate on a mortgage than for most other forms of debt (e.g. credit cards, overdraft facilities, personal loans etc.). Providing you have sufficient equity in your property, you may be able to consolidate all your debt on a home loan. If you take this option though, it is important to make sure you maintain your repayments at their current level or you could end up paying more over a longer period of time.
What's the difference between an "owner-occupies home loan" and an "investment loan"?
The goal for most owner-occupier clients is to pay down their home loan as fast as possible, to reduce the amount of interest paid. This is achieved by utilising the benefits of an offset account and making fortnightly or additional repayments.

As investment loan can be set to Interest Only, which helps investors repay only the interest – which assists with cash flow.

Investment loans typically attract a higher interest rate and there are fees and features which will vary between owner-occupied and investment loans.

Can I use equity in my home as a deposit for an investment property?
The short answer is generally ‘yes’… however, we need to ensure you have sufficient equity and borrowing capacity to commit to purchasing an investment property. Many investors will purchase their first investment property using equity, and we can show you how to structure this tax effectively and to protect your home’s equity position. We also avoid cross collateralisation for clients by keeping their home loan and investment loan separate.
Government Grants and Schemes
Can I apply for multiple First Home Buyer government grants and schemes?

Yes, you can if you’re eligible. For example, an eligible first home buyer can apply for and qualify for the First Home Owners Grant (FHOG), the First Home Loan Deposit Scheme (FHLDS), and the HomeBuilder grant.  Since each state has its own Stamp Duty, eligibility criteria, and timelines, getting these three to align properly becomes challenging. 

For example, if you have a spot in the FHLDS, you have three (3) to find and purchase a home. 

Looking for a Sydney Mortgage Broker and Investment Specialist?

Call Aaron on 02 4267 2652 for an obligation-free consultation

Atelier Wealth

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