Australian Home Loans: 7 Things Borrowers Should Understand Before Applying

1. Understand Your Borrowing Capacity

• Your borrowing capacity depends on several factors:
• Income and employment stability
• Existing loans and credit card limits
• Living expenses and financial commitments
• Deposit amount and savings
• Interest rates and lender assessment criteria
• Key takeaway: The amount you can borrow may differ from the amount you can comfortably repay.

2: Plan Your Deposit and Upfront Costs

• Deposit Amount: Understand how much deposit you need for your property.
• Stamp Duty: Check applicable state or territory stamp duty costs.
• Legal Fees: Budget for conveyancing and legal services.
• Inspection Costs: Allow for building and pest inspections where applicable.
• Emergency Savings: Keep funds aside for unexpected expenses after settlement.
• Key takeaway: Plan for the full cost of buying a home, not just the deposit.

3: Compare Home Loan Options

• Interest Rates: Compare fixed and variable interest rate options.
• Loan Fees: Check application fees, ongoing fees and other charges.
• Repayment Flexibility: Understand extra repayments and redraw facilities.
• Loan Features: Compare offset accounts and other available features.
• Lender Comparison: Review multiple lenders to find a loan suited to your needs.
• Key takeaway: Compare the total cost and features of a loan, not just its interest rate.

4: Understand Lenders Mortgage Insurance (LMI)

• What Is LMI? Understand how lenders mortgage insurance works.
• When It Applies: It may apply when borrowing with a smaller deposit.
• Understand the Cost: Ask how much LMI could add to your loan expenses.
• Explore Your Options: Ask lenders or your broker about available alternatives.
• Check Eligibility: Review applicable lender requirements and any available exemptions.
• Key takeaway: Understand whether LMI applies and how it affects your overall borrowing costs.

5: Review Your Financial Position

• Income Stability: Consider how secure and consistent your income is.
• Monthly Budget: Calculate your regular income and expenses.
• Existing Commitments: Account for debts and other financial obligations.
• Savings Buffer: Maintain emergency savings where possible.
• Future Changes: Consider potential changes in employment, family needs or expenses.
• Key takeaway: A realistic budget helps you prepare for the financial responsibilities of homeownership.

6: Consider Future Repayment Affordability

• Interest Rate Changes: Consider how higher rates could affect repayments.
• Repayment Schedule: Understand your repayment amount and frequency.
• Unexpected Expenses: Allow room in your budget for emergencies.
• Income Changes: Consider whether you could manage temporary income disruptions.
• Long-Term Planning: Check whether repayments fit your future financial goals.
• Key takeaway: Choose a repayment commitment that remains manageable if your circumstances change.

7: Explore Your Borrowing Power

• Estimate Your Capacity: Use a borrowing calculator for an initial estimate.
• Enter Accurate Details: Include income, expenses, debts and deposit information.
• Compare Scenarios: See how different deposits or loan amounts affect estimates.
• Review Your Budget: Consider what you can comfortably afford to repay.
• Seek Professional Guidance: Discuss your circumstances with a qualified mortgage broker or lender.
• Key takeaway: A borrowing calculator is a starting point, not a guarantee of loan approval.