When purchasing a home or investment property, aligning a number of variables will ensure, you are organised and ready to join the market.
Budget and Deposit
Depending on what type of buyer you are will determine these added costs. If you are a first home buyer click here.
One, equity is not your money. Equity is only your money if you sell property or can afford further funding to draw down on your equity, increasing your loan. A huge mistake is when clients may begin planning their next purchase based on the amount of equity they have, assuming it is easily accessible, expecting to fully fund their next purchase also with further debt. Ensure to research your total borrowing capacity and make sure you can indeed access your equity as well as fund the remaining amount needed on the next purchase.
Two, your borrowing capacity (slightly different with each lender) is your total capacity. Therefore, if you jump the gun and access equity funding for other projects for example renovations, holidays or take out a new car loan or credit card, your borrowing capacity then goes down.
For example, if your borrowing capacity is $500,000 for a new investment property and you take $100,000 out of your existing property equity, your borrowing capacity is now $400,000 for a new purchase.
When purchasing a new home or investment property you may wish to put a pre approval in place. This will give you the comfort that the bank has already reviewed your finances and accepted your current financial circumstance. Without a Pre Approval, you are not able to bid at Auction with confidence.
Depending on which Lender you decide to go with, will determine the period of time your Pre approval will last for, most lender are 3-6 months, However you can extend your Pre Approval every 3-6 months if needed.
You may not buy immediately, therefore even with a pre approval, things can change in your personal life and financial circumstance.
We advise only placing a Pre Approval if you are actively looking, as every time you extend your Pre Approval, the lender will require a credit check. Credit checks place an enquiry on your credit file lowering your credit score. If you require Lenders Mortgage Insurance, the insurer has a requirement of minimal credit inquires within a 12 month period, specifically within the 3 months before you buy. Avoid applying for credit unless you need it through your life time and your credit score will only reflect what is needed. Click here for further details on your credit score and credit inquiries.
It's important to note, whilst you hold a Pre Approval, you may still be required to have a financial assessment again at the time of purchase, to ensure you haven't had any dramatic changes to your income or family.
Here are some examples of lifestyle and financial changes that will effect your Pre Approval:
What size deposit is required?
Usually, you are required to have a minimum of 5-10% of the purchase price, however under 80% loans will avoid Lenders Mortgage Insurance.
For example: If you purchase a new home for $500,000 then your deposit to secure a loan at 80% and avoid lender mortgage insurance will be $100,000. If your parents’ home is valued at $800,000 then the lender can hold the title for your parents’ home, as well as your title for your new home. This provides a sufficient security for the lender to allow you to avoid paying physical cash towards your purchase.