Basic Loan Facts
How much can I borrow?
Each lender calculates how much you can borrow differently. That is one of the reasons it is best to use a Finance Broker to organise your loan. We can very easily calculate how much you can borrow from various banks if you can tell us how much you earn and what are your current debts and monthly payments (Personal Loan, Car Loan, Credit Cards, Store Cards, etc.).
How much deposit do I need?
When buying your new home or investment property you will generally require a minimum of 5% deposit. This can be either by way of savings, the sale of other assets, equity from another property you own or in the form of a guarantee from a family member or friend.
If your deposit is less than 20% of the purchase price then the bank will require you to apply for Lenders Mortgage Insurance (LMI).
Other costs to consider
Stamp Duty:- The stamp duty payable varies from state to state and is also subject to the reason you are purchasing the property. In Queensland there is a concession and reduction in stamp duty available for First Home Owners or if you intend to live in the property. The reduced stamp duty is subject to specific purchase price limits.
Other Costs:- When purchasing a property there are other costs to consider in addition to stamp duty such as legal fees, state government fees, mortgage registration fees etc. These costs will vary subject to the price of the property. If you have a price range in mind please contact us and we can give you a more accurate estimate.
Lenders Mortgage Insurance (LMI) is payable by you when you have less than 20% deposit to contribute either by way of savings, the sale of other assets, equity from another property or the help from a guarantor.
In the event that you default on the loan, then the bank may claim through the LMI insurance company any financial shortfall after the property is sold by the bank. The LMI insurance company will then make a claim against you personally for any monies repaid to the bank.
The LMI premium / cost will range from between 0.25 % and 4% of the loan amount you are borrowing. It is a once up payment for the life of the loan and can be generally added to your base loan.
For example – if you purchase a property for $400,000 with 10% deposit ($40,000) then your base loan is $360,000. The LMI premium is then added to your base loan amount giving you a total loan amount calculated as follows:-
$400,000 – $40,000 = $360,000 plus $5,940 (LMI) = total loan $ 365,940
Your loan repayments will be calculated on the total loan amount of $365,940
The value of LMI
The main value of paying LMI is that of time. Paying the LMI premium is your personal trade-off between using your own equity or saving your deposit and borrowing the additional deposit from the bank. In some cases it can take many years to save a 20% deposit. The more you save the less the LMI premium, however in the time you are saving you are paying out more rent and potentially missing any capital growth in the market place by owning your new property.
First Home Owner Grant (FHOG) – Great Start Grant (GSG)
Each Australian State has incentives available for the First Home Owner. You can research the various incentives on-line. In Queensland the FHOG was replaced by the GSG as of September 2012. The GSG is a cash incentive of $15,000 to eligible first home buyers and is restricted to the purchase of a new property that has not previously been lived in. In some cases a fully renovated property may be acceptable. If you intend to purchase an existing property you may still be entitled to the First Home Owner’s reduction in stamp duty up to the purchase price of $500,000. If you are buying vacant land to build on you may qualify for no stamp duty if the purchase price of the land is under $250,000.
What is LVR – loan to value ratio?
You will read or hear that lenders will lend to either 95% or 97% LVR. LVR is the calculation between the purchase price of the property and the loan amount you are borrowing. To calculate the LVR you divide the loan amount by the purchase price. For example: Loan amount $360,000 / Property value $400,000 = 90% LVR
Each lender evaluates self-employed applicants income differently. As a general rule you need to have a registered ABN and have been trading for at least 1 to 2 years.
If you are self-employed please contact us and we can discuss the various finance options available to you.
Buying a property with your superannuation
Buying a property using your superannuation fund is becoming very popular because of the substantial tax advantages and finance options available to you. Obviously there are some limitations and rules you need to adhere to but they are not too difficult. If you would like to discuss this option further please contact us.