Newbie for Home Loan

[H2O]

Hi all,

I wanna buy my first home as an IP before the end of this year as stamp duty concessions will come to the end after this year. I been reading the relevant things. I wanna know more before I gonna contact any mortgage providers or brokers. I'm still quite confused on many terms, conditions or even the sequences. I'd like to seek advice from both of you.

The property that I want costs nearly $500k and it's an apartment in NSW. I wanna borrow 80% of that price from banks. I've a credit card and the credit history is good.

1. What % of the deposit and repayment of the savings and income would be the safe or conservative approach?

2. Is LMI a must if LVR exceeds 80%? How much does it cost generally?

3. What's the benefit of interest-only home loan? Is there any exit fees or penalties when I gonna fully pay the loan off during the loan term; i.e. paid off in the first 10 yrs during a 30 yrs repayment period?

4. How long does a mortgage provider or bank normally grant a pre-approval and formal approval for a loan application?

5. Is it worth to carry out pest/ building inspections? How much does it cost?

6. How much does it cost for other associated services, e.g. conveyancer, solicitor, insurances, etc.?

7. Is it eligible to apply for professional package if the income is about $100k p.a.?

8. Should I request to extend the cooling off period? coz I dun know if the finance can be approved and it's able to get the building inspection done within the time frame.

9. How long does it take to the final settlement from when I confirm the deal and pay the 0.25% deposit?

10. Why can the other lenders make more attractive offers than banks? Are they trustworthy and honest enough?

11. How to select an appropriate mortgage broker?

Thank you for your help in advance!

 

[Aaron_C]

Hi H2O, welcome to the forum. Answers below:

1. What % of the deposit and repayment of the savings and income would be the safe or conservative approach?

20% or more in deposit is considered safe/conservative, as you avoid mortgage insurance. But it's hard to recommend this exclusively - sometimes mortgage insurance is a good thing as it helps you preserve precious cash for other investments.

2. Is LMI a must if LVR exceeds 80%? How much does it cost generally?

Yes it is a must. Some lenders waive it but generally it is always needed because if LMI is not taken, the banks must hold greater capital against your loan - and they don't want that as it reduces their RoE. Plus - you pay for it anyway so why do they care? It costs about 1 to 3% of the loan value depending on the LVR. But lots of lenders allow you to add LMI to the loan amount anyway (called LMI capitalisation) so you don't pay anything out of your own cash.

3. What's the benefit of interest-only home loan? Is there any exit fees or penalties when I gonna fully pay the loan off during the loan term; i.e. paid off in the first 10 yrs during a 30 yrs repayment period?

No more exit fees, they've been banned. The benefits of an interest-only home loan is that you maximise your amount of tax-deductible debt. This means you get greater tax deductions which helps with negative gearing and means you pay less tax. Also, interest-only loans cost less money each month as there is no principal repayment - this is very good for cashflow.

4. How long does a mortgage provider or bank normally grant a pre-approval and formal approval for a loan application?

Pre-approval can be valid for 30-90 days...but don't get sucked into pre-approval. It means nothing as it's subject to so many conditions etc. Formal loan approval, which is obviously a lot more reliable, lasts for 90 days.

5. Is it worth to carry out pest/ building inspections? How much does it cost?

Generally I don't bother, especially for an apartment as they don't face the same structural issues that houses do. They can cost ~$400-500.

6. How much does it cost for other associated services, e.g. conveyancer, solicitor, insurances, etc.?

Depends. Some solicitors will do conveyancing for $300-400. Re insurance, you won't need this as the body corporate will already have taken out building insurance on apartments. But you do need to get a copy of this certificate to show the bank when you get finance.

7. Is it eligible to apply for professional package if the income is about $100k p.a.?

What package do you mean? What features do you want? Hard to answer.

8. Should I request to extend the cooling off period? coz I dun know if the finance can be approved and it's able to get the building inspection done within the time frame.

You can't extend cooling off period. If you are worried about finance, make offers with 'subject to finance' clauses in there. That way you can pull out of the contract if you are knocked back for a loan.

9. How long does it take to the final settlement from when I confirm the deal and pay the 0.25% deposit?

However long you want. Most transactions are 60-90 days. Sometimes you can offer faster settlement (30 days) if you think the vendor will accept a lower offer with a shorter settlement.

10. Why can the other lenders make more attractive offers than banks? Are they trustworthy and honest enough?

It's because they source their funds from the wholesale credit market.
Re trustworthy/honesty - don't forget THEY are lending YOU money. They should be the ones worried about trust

11. How to select an appropriate mortgage broker?

Find one who knows not just about the loan products, but how to help you reach your financial goals in the near future by structuring things properly and giving generally good advice. I always find that branch staff give bad advice because they are ignorant and don't care.

Thank you for your help in advance!

I hope this answers your questions!

 

[Rolf Latham]

Hi all,

I wanna buy my first home as an IP before the end of this year as stamp duty concessions will come to the end after this year. I been reading the relevant things. I wanna know more before I gonna contact any mortgage providers or brokers. I'm still quite confused on many terms, conditions or even the sequences. I'd like to seek advice from both of you.

The property that I want costs nearly $500k and it's an apartment in NSW. I wanna borrow 80% of that price from banks. I've a credit card and the credit history is good.

1. What % of the deposit and repayment of the savings and income would be the safe or conservative approach?

2. Is LMI a must if LVR exceeds 80%? How much does it cost generally?

3. What's the benefit of interest-only home loan? Is there any exit fees or penalties when I gonna fully pay the loan off during the loan term; i.e. paid off in the first 10 yrs during a 30 yrs repayment period?

4. How long does a mortgage provider or bank normally grant a pre-approval and formal approval for a loan application?

5. Is it worth to carry out pest/ building inspections? How much does it cost?

6. How much does it cost for other associated services, e.g. conveyancer, solicitor, insurances, etc.?

7. Is it eligible to apply for professional package if the income is about $100k p.a.?

8. Should I request to extend the cooling off period? coz I dun know if the finance can be approved and it's able to get the building inspection done within the time frame.

9. How long does it take to the final settlement from when I confirm the deal and pay the 0.25% deposit?

10. Why can the other lenders make more attractive offers than banks? Are they trustworthy and honest enough?

11. How to select an appropriate mortgage broker?

Thank you for your help in advance!

Hi Welcome

1. There are several schools of thought on % of deposit. I personally suggest that if one has just enough to squeek in for a 20 % deposit to either go for an 85 % no LMI loan, or pay the lmi and go for a 90 % lend, and put the balance of your savings into offset.

2. ING and Citi may do an 85 % no lmi lend........a few conditions. a 90 % lend at 450 say means a LMI premium of around 1.5 % ish

3. IO is useful for those that can control their spending. If you may turn this place into an IP at some point in the future, an IO loan will benefit you a lot for tax reasons. If you choose a loan with a 100 % offset account you can pay as much off INTO that as you want usually without any penalty

4. pre approvals vary as to usefulness and validity. generally anything beyond 4 weeks ( last set of payslips) cant be relied upon if your circumstances change.

5. P&B and strata are generally a must 500 to 800 is a guide only

6. Soli would be around 1000 to 1500 depending on outgoings

7. Propack eligibility has more to do with the amount u borrow

8. Cooling off is case by case and what lender u use, and if u can get vaks done upfront etc, so no easy answer here

9.Settlement standard in NSW is 42 days from exchange but can be shorter or longer by mutual agreement

10. Whats an attractive offer..........? rarely is there something for nothing

ta'rolf

 

[H2O]

Hi Welcome

1. There are several schools of thought on % of deposit. I personally suggest that if one has just enough to squeek in for a 20 % deposit to either go for an 85 % no LMI loan, or pay the lmi and go for a 90 % lend, and put the balance of your savings into offset.

2. ING and Citi may do an 85 % no lmi lend........a few conditions. a 90 % lend at 450 say means a LMI premium of around 1.5 % ish

3. IO is useful for those that can control their spending. If you may turn this place into an IP at some point in the future, an IO loan will benefit you a lot for tax reasons. If you choose a loan with a 100 % offset account you can pay as much off INTO that as you want usually without any penalty

4. pre approvals vary as to usefulness and validity. generally anything beyond 4 weeks ( last set of payslips) cant be relied upon if your circumstances change.

5. P&B and strata are generally a must 500 to 800 is a guide only

6. Soli would be around 1000 to 1500 depending on outgoings

7. Propack eligibility has more to do with the amount u borrow

8. Cooling off is case by case and what lender u use, and if u can get vaks done upfront etc, so no easy answer here

9.Settlement standard in NSW is 42 days from exchange but can be shorter or longer by mutual agreement

10. Whats an attractive offer..........? rarely is there something for nothing

ta'rolf

Hi Rolf,

Thanks for your advice.

As you said, if I borrow 90% and put my balance of savings into the offset account, how to make the calculation for this strategy? What's the 100% offset account?

What could I do in this stage except saving deposit if I want a 2nd IP in the future? Will the first IP affect financing the second one?

Thank you very much!

 

[H2O]

Hi H2O, welcome to the forum. Answers below:

1. What % of the deposit and repayment of the savings and income would be the safe or conservative approach?

20% or more in deposit is considered safe/conservative, as you avoid mortgage insurance. But it's hard to recommend this exclusively - sometimes mortgage insurance is a good thing as it helps you preserve precious cash for other investments.

2. Is LMI a must if LVR exceeds 80%? How much does it cost generally?

Yes it is a must. Some lenders waive it but generally it is always needed because if LMI is not taken, the banks must hold greater capital against your loan - and they don't want that as it reduces their RoE. Plus - you pay for it anyway so why do they care? It costs about 1 to 3% of the loan value depending on the LVR. But lots of lenders allow you to add LMI to the loan amount anyway (called LMI capitalisation) so you don't pay anything out of your own cash.

3. What's the benefit of interest-only home loan? Is there any exit fees or penalties when I gonna fully pay the loan off during the loan term; i.e. paid off in the first 10 yrs during a 30 yrs repayment period?

No more exit fees, they've been banned. The benefits of an interest-only home loan is that you maximise your amount of tax-deductible debt. This means you get greater tax deductions which helps with negative gearing and means you pay less tax. Also, interest-only loans cost less money each month as there is no principal repayment - this is very good for cashflow.

4. How long does a mortgage provider or bank normally grant a pre-approval and formal approval for a loan application?

Pre-approval can be valid for 30-90 days...but don't get sucked into pre-approval. It means nothing as it's subject to so many conditions etc. Formal loan approval, which is obviously a lot more reliable, lasts for 90 days.

5. Is it worth to carry out pest/ building inspections? How much does it cost?

Generally I don't bother, especially for an apartment as they don't face the same structural issues that houses do. They can cost ~$400-500.

6. How much does it cost for other associated services, e.g. conveyancer, solicitor, insurances, etc.?

Depends. Some solicitors will do conveyancing for $300-400. Re insurance, you won't need this as the body corporate will already have taken out building insurance on apartments. But you do need to get a copy of this certificate to show the bank when you get finance.

7. Is it eligible to apply for professional package if the income is about $100k p.a.?

What package do you mean? What features do you want? Hard to answer.

8. Should I request to extend the cooling off period? coz I dun know if the finance can be approved and it's able to get the building inspection done within the time frame.

You can't extend cooling off period. If you are worried about finance, make offers with 'subject to finance' clauses in there. That way you can pull out of the contract if you are knocked back for a loan.

9. How long does it take to the final settlement from when I confirm the deal and pay the 0.25% deposit?

However long you want. Most transactions are 60-90 days. Sometimes you can offer faster settlement (30 days) if you think the vendor will accept a lower offer with a shorter settlement.

10. Why can the other lenders make more attractive offers than banks? Are they trustworthy and honest enough?

It's because they source their funds from the wholesale credit market.
Re trustworthy/honesty - don't forget THEY are lending YOU money. They should be the ones worried about trust

11. How to select an appropriate mortgage broker?

Find one who knows not just about the loan products, but how to help you reach your financial goals in the near future by structuring things properly and giving generally good advice. I always find that branch staff give bad advice because they are ignorant and don't care.

Thank you for your help in advance!

I hope this answers your questions!

Hi Aaron,

Thank you for your advice.

Is it worth to pay LMI? as it's a burden to fork out 20% deposit. It'll really affect cash flow.

When and who should I ask for the certificate of building insurance?

Thanks again!

 

[Aaron_C]

Hi Aaron,

Thank you for your advice.

Is it worth to pay LMI? as it's a burden to fork out 20% deposit. It'll really affect cash flow.

When and who should I ask for the certificate of building insurance?

Thanks again!

I think LMI can be worth it - but like I said it depends on your circumstances. If you are low in free cash but have strong income then I would probably recommend it (if you can afford it).

The certificate of currency for building insurance is held by the body corporate (aka owner's corporation). All you need to do is ask them for it after you've purchased the property. And make sure you ask them EARLY because sometimes they take their time (they often say their insurance broker has the only copy) to get it to you.

 

[Rolf Latham]

Hi Rolf,

Thanks for your advice.

As you said, if I borrow 90% and put my balance of savings into the offset account, how to make the calculation for this strategy? What's the 100% offset account?

What could I do in this stage except saving deposit if I want a 2nd IP in the future? Will the first IP affect financing the second one?

Thank you very much!

Assume your loan is 100 000. and you have 10 000 in the offset account. Then interest is calcluated on 100 000 - 10 000 = 90 000

DOnt really have enough information if you have the capacity for another IP from an income POint of view.

BTW, you are aware that the STAMPS exemption in NSW applies only ot a buyer that will owner occ, and is also eligible for the FHOG and has not previously owned any property.

ta
rolf

 

[H2O]

I think LMI can be worth it - but like I said it depends on your circumstances. If you are low in free cash but have strong income then I would probably recommend it (if you can afford it).

The certificate of currency for building insurance is held by the body corporate (aka owner's corporation). All you need to do is ask them for it after you've purchased the property. And make sure you ask them EARLY because sometimes they take their time (they often say their insurance broker has the only copy) to get it to you.

Hi Aaron,

Low free cash is my situation indeed. Moreover, I wanna keep the cash flow healthy for investing next IPs in the future.
I have about $100k p.a. gross income. About $100k (max.) can be used for deposit. Actually, I dun wanna use all $100k of my savings. It's too risky to me. The target property is worth $500k. What strategy should I go for? I dun mind interest-only loan and LMI if it really suit my case. Easy for re-structuring or re-financing would be better. I'm thinking not just the first home/ IP, but the second one in the near future.
Beside, is it worth to make extra repayment when using IO loan? What's the influence to me if negative equity occurs?

 

[Aaron_C]

When you say extra repayment, I would always recommend that the 'payment' goes into an offset account, not the actual loan itself. Otherwise you get into a sticky tax situation with redraw and you don't want to go down that path. If negative equity occurs, well you just have to wait until you move into positive territory again. It has no effect on your actual loan or the repayments.

Since it's an IP - Interest only is always always recommended to maximise and preserve cashflow.

 

[H2O]

Assume your loan is 100 000. and you have 10 000 in the offset account. Then interest is calcluated on 100 000 - 10 000 = 90 000

DOnt really have enough information if you have the capacity for another IP from an income POint of view.

BTW, you are aware that the STAMPS exemption in NSW applies only ot a buyer that will owner occ, and is also eligible for the FHOG and has not previously owned any property.

ta
rolf

Hi Rolf,

What's occ? I'm running out of time. Probably I can't buy any props before the end of stamp duty concessions. Does it cost a considerable amount of money? I means stamp duty.
Gross income: $100k p.a.; saving: $100k (max.); target prop (unit): $500k. Could you give me some advice?

 

[Aaron_C]

Rolf is saying that the stamp duty exemption only applies to you if you buy a property to live in ( owner occupied ). If you intend to use it as an IP from day 1 then you can't claim the exemption.

 

[H2O]

Rolf is saying that the stamp duty exemption only applies to you if you buy a property to live in ( owner occupied ). If you intend to use it as an IP from day 1 then you can't claim the exemption.

Can I rent it out after half an year later?
I think seeking pro broker's advice is crucial to me. Will it benefit to find a local broker? or it isn't a matter that whether he/ she is local or not?
Do you know any good brokers in Sydney?

 

[Aaron_C]

Can I rent it out after half an year later?
I think seeking pro broker's advice is crucial to me. Will it benefit to find a local broker? or it isn't a matter that whether he/ she is local or not?
Do you know any good brokers in Sydney?

Yes you can rent it out after you satisfy the OSR's criteria. Don't forget about the first home owner's grant (FHOG) too which is $7,000.

As for whether you go for a local/interstate broker, it's really up to you. There's plenty of brokers here who operate in Sydney like Michael (Mick_C) and Rolf too. Although nowadays it doesn't really matter where you're located because all documents etc are either faxed or emailed to the banks anyway. But some people like to have that face-to-face meeting first, which is always helpful!

 

[gwaipor]

For IO lOan with offset- what is the point of putting money into offset? Isn't the point of IP with IO only to save your cash for other things? Hence paying as little as possible?

 

[Aaron_C]

For IO lOan with offset- what is the point of putting money into offset? Isn't the point of IP with IO only to save your cash for other things? Hence paying as little as possible?

The point is to save interest costs each month if you do have spare cash lying around...but still retain the flexibility to take out your money whenever you want for any other purpose. Plus it doesn't fall foul of the ATO come tax-time.

 

[jech]

Rolf is saying that the stamp duty exemption only applies to you if you buy a property to live in ( owner occupied ). If you intend to use it as an IP from day 1 then you can't claim the exemption.

Can you rent it out from day 1 and move in before 12 months of purchase to become ppor?

 

[Aaron_C]

Can you rent it out from day 1 and move in before 12 months of purchase to become ppor?

yes you have to live in there for 6 months within the 12 month period though. My post needed some clarification.

 

[Qlds007]

Might be different in NSW but in Qld you have to have make the property your PPOR by starting to occupy the property for 6 continous months within the first 12 months.

You can move in 1 day before the 1 year is up and live in the property for 6 months rather than within the first 12 months.