7 STEPS WHEN BUYING YOUR FIRST HOME

In this article, we’ll look at the essential steps first home buyers should take to secure their new home, to include working out a budget, organising a home loan, taking advantage of the First Home Buyer Grant, and more.

 

Buying your first home?

Buying your first home, the ‘Great Australian Dream’, is a very exciting time. But it can also be daunting as there’s so many things that need to be considered. This ‘7 Steps to Buying Your First Home’ guide has been developed to help make the process a bit less overwhelming. Here’s an overview of what should be on your radar:

 

Step 1: What is your budget?

There are a few areas to think through when it comes to how much you can spend on your new home, and how much you can afford to repay on a home loan, to include:

  • Your household budget: This is your total household after-tax income (including you and or your partner), and any investment income you may earn. Then you must calculate ALL your total living expenses, including groceries, dining out, entertainment, the cost of running your car(s), gym membership and even your Netflix subscription. Use a spreadsheet or find an online calculator from a lender to help with this. The difference between your after-tax income and living expenses is how much you can put toward your home loan. Tip: be sure to leave some ‘rainy day’ contingency plan money to make sure you’re not completely stretched in the event of an unforeseen circumstance, such as a redundancy or unexpected medical expense.
  • Your savings or deposit: How much do you have for a deposit? This is a major factor in calculating how much you can spend on a home, with most lenders looking for at least a 20% deposit. With than less than 20% deposit, you will often need to pay Lenders Mortgage Insurance (LMI), which can cost thousands of dollars. If you are like around half of all first home buyers in Australia, you may be able to lean on the ‘Bank of Mum and Dad’ for some help with your deposit.
  • Don’t forget stamp duty: All states in Australia charge stamp duty (the cost to transfer the property into your name). This is generally calculated using a sliding scale based on purchase price and can add around 4% to your purchase cost.
  • First Home Buyer Grant: There is a range of schemes and grants available to first home buyers from both the Federal and State Governments (note these differ between states). The First Home Loan Deposit Scheme (FHLDS) is an initiative of the Australian Government to support eligible first home buyers build or purchase a home sooner. This scheme allows for a smaller deposit (say 5%) with the Government guaranteeing the difference up to 15% to help borrowers avoid LMI. In NSW, for example, you may be eligible for a $10,000 grant to build a new home, or a variety of concessions to build new homes or purchase existing homes. Full details on grants, concessions and how to apply in NSW are here.

 

Step 2: Find the right home loan

There are many types of lenders that provide home loans (otherwise known as first mortgages). Besides the traditional big banks, there are new non-bank lenders, private lenders and fintechs, such as Mango Credit who all offer mortgage products.

 

Here are a few tips for first home buyers to keep in mind when considering a lender:

  • Get your finances in order: You need all your paperwork handy and in good order, including current payslips, last two year’s tax returns, six months of bank statements and details of any other loans (such as a car or personal loan) and credit cards.
  • Check your credit score: A ‘credit score’ is a number between 300–850 that depicts a consumer’s creditworthiness. The higher the score, the better a borrower looks to potential lenders. A credit score is based on credit history: number of open accounts, total levels of debt, and repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner. What this means in real terms is that the higher the credit score, the more options you’ll have available to you (and the cheaper the interest rate will be).
  • Your capacity to pay: Your after-tax income, less living expenses, will tell you how much you can afford to pay on a mortgage. It is prudent to consider the impact of interest rate increases, and if you can afford to meet your repayments if rates rise. If your capacity to cover rate rises is limited, consider fixing the interest rate for all or part of your loan.
  • Shop around: Don’t just talk to your current financial institution or bank. You can talk to a broker or look online to compare the products, rates and fees of a large number of lenders that include the traditional big banks, but also a growing range of non-bank lenders, private lenders and fintechs who all offer mortgage products for first home buyers.

 

Step 3: Find your new home

This is the fun part, but it can also be a lot of legwork… Here, the internet is your friend and can give you a good idea of the price guides of homes in areas you are interested in, as well as previous sales in these areas. Try Domain or realestate.com.au, the two largest real estate sites in Australia.

 

Nothing beats seeing a home in person, so once you have a shortlist of homes in the areas you like and within your price range, attend open homes to inspect the ones you are interested in.

 

You can also let real estate agents in your preferred suburbs know that you are actively looking, what you are looking for, and your price range. Ask the agent to let you know about new listings and even off-market properties they have on their books.

 

Step 4: Have a closer look

Don’t commit to purchase a home before you look under the covers (or more accurately, behind the walls). It’s critical to conduct thorough professional inspections prior to purchasing a home, to include pest and building/ electrical inspections. For any strata purchases, it’s wise to request strata minutes from the last few years to ensure there are no major problems in the building. This will cost money, but will ensure no nasty surprises after you buy. And if you find urgent repairs are needed, or there are larger structural issues, you can factor this into the purchase price and your offer, or walk away.

 

Step 5: Make an offer

Most homes are offered either by private sale or treaty, or they go to auction. Typically, they are sold via a real estate agent, but some vendors sell directly. Once you know this is the home you want, make an offer within your budget. Be careful with so-called price guides provided by agents, particularly in a ‘hot’ property market. Often, they are less than what the vendor really wants or hopes to achieve at auction, so your initial offer may be unsuccessful.

 

Note that private treaty sales have a cooling-off period for inspections etc., but auctions don’t usually provide this option. So, it is crucial if you are bidding at an auction to have pre-approved finance and have done all the necessary inspections.

 

You may consider engaging a buyers’ agent to help you with the negotiation process, or even to bid on your behalf at auction. While it costs money to engage a buyer’s agent, they can also save you time, stress and potentially tens of thousands of dollars by securing a better price than you might have on your own.

 

Once your offer is accepted, contracts will be exchanged, and a deposit (usually 10% of the purchase price) will be paid into a trust account.

Step 6: Over to the lawyers

Property contracts are large documents full of ‘legalese.’ That’s why there are many specialist conveyancing firms that work solely in the area of property. You will also find many suburban law firms that offer a range of legal services, including conveyancing. This investment ensures there are no surprises once you have completed the purchase process.

 

Typically, the process from contract exchange to settlement is six weeks, but the timing can be negotiated between you and the vendor. During this time, your conveyancing solicitor will liaise with the vendor’s solicitor, council and various government departments to ‘tick all the boxes’ and support a smooth transfer of ownership to you.

 

Step 7: Settlement and time to celebrate!

On settlement day, and in exchange for the purchase price less the deposit you have already paid, you receive the title and keys to your new home. Congratulations, you are now a proud home owner! All that remains is for you to move in and turn your new house into a home.

 

Key takeaways

Buying your first home is a huge commitment. If you understand the steps involved, and have considered all the important factors, the process will hopefully be faster, less stressful and a lot more enjoyable. Good luck!

WHY A SECOND MORTGAGE MAY BE YOUR FIRST CHOICE

In this article, we’ll look at short-term second mortgages – what they are, how they work, how you might use them, their benefits, and what to consider when you are applying for one.

 

What is a second mortgage?

When you have equity in your property and need access to funds quickly, a short-term second mortgage can be a good option in the absence of not being able to extend or refinance your first mortgage.

A second mortgage is essentially a second loan that’s in addition to the primary (first) mortgage, secured against your property. Also known as a second lien, or secondary registered interest, it uses the equity you have in your property and, once established, means you will have two mortgages against your property.

Traditionally, second mortgages were like first mortgages, in that they were for very long periods of time (sometimes decades). However, in Australia, the rise of non-bank and private lenders has opened up the options for borrowers – in particular, offering short-term second mortgages that typically have a term from two-to-36 months. Short-term second mortgages are an increasingly popular alternative for both personal and business funding requirements.

For mortgage providers, a second mortgage means they are second in line to be paid, after the first mortgage is paid, so their risk is somewhat larger. This can be an important factor in being approved for a second mortgage, and the cost (interest rate) applicable to the loan.

 

How does a second mortgage work?

A second mortgage is very similar to a first mortgage, in that it is secured against your property. Importantly, mortgage providers will consider the total loan-to-value ratio (LVR) of both the primary and secondary mortgages in evaluating the loan for approval.

Second mortgages tap into the equity that you have in your property. This will increase over time as you make payments and reduce the principal, and/ or with increases in the property value. This additional equity can then be ‘released’ via a second mortgage loan.

You can apply online for a second mortgage with a range of lenders, and once approved, the loan may take the form of a lump sum (one-time loan) or a line of credit (available to be drawn upon as the need arises).

 

When you may consider a short-term second mortgage

There are a variety of reasons why you might consider a short-term second mortgage to access funds for a limited period. These include:

  • Renovations: If you are planning on selling your property, a short-term second mortgage can provide funds to make improvements to your home that can be quickly released upon the sale of the home (i.e. the first and second mortgages are paid out once the property has sold).
  • ‘Bridging the gap’: A short-term second mortgage is commonly used to ‘bridge the gap’ between the purchase of one property and the sale of another, when the settlement timings don’t quite match up.
  • Investment property: You can access the equity in your property to purchase another property, using a short-term second mortgage to fund the deposit and/ or purchase.
  • Debt consolidation: A short-term second mortgage with a lower interest rate is often used to pay off personal loans, credit card debts, or even a large medical or tax bill.
  • Business use: Standard business loans typically attract a higher rate of interest than a loan secured by property, so a short-term second mortgage is regularly considered when short-term funds are required to boost business cash flow or working capital (for example, to pay suppliers and wages, purchase stock/ equipment or ‘even out’ invoice lags).

 

The benefits of second mortgage loans

If you have solid equity in your property, and need access to additional funds relatively quickly for short-term personal or business use, there are a range of benefits to choosing a short-term second mortgage:

  • Large loan amount: You can often access large loan amounts with a short-term mortgage as they’re secured by property (which mortgage providers consider the ‘safest’ type of guarantee). The amount you can borrow depends on the amount of equity you have in your property.
  • Lower rate of interest: A short-term second mortgage typically has a lower rate of interest in comparison to alternatives such as caveat loans or unsecured personal loans.
  • Higher LVR: Short-term second mortgages usually have a higher loan-to-value ratios (LVR), which means you can borrow a larger loan amount.
  • Fast access to funds for a variety of uses: A short-term second mortgage loans allow you to access the equity you have built up in your property relatively quickly for personal use (such as renovations to prepare your property for sale), or if you have a time-sensitive business opportunity or requirement (such as purchasing another business or boosting working capital).

 

If you have equity in your property and need short-term funds for personal or business use, Mango Credit makes it easy to apply online for a short-term second mortgage.

 

What to consider when applying for a short-term second mortgage

While there are many benefits to using a second mortgage for access to short-term funds, there are some important areas that should be investigated before applying for a loan, to include:

  • Equity: How much equity you have and what the total LVR will be once you have two mortgages secured against your property.
  • Application process: Your first mortgage lender will need to approve the registration of a second mortgage on the title of your property. The application process is a little more complex than for, say, a caveat loan, as the lender needs to value the property and run credit checks. There may also be fees associated with the application process.
  • Interest: Adding a significant loan amount to your first mortgage will mean you are paying additional interest.

 

Key takeaway

When you have equity in your property and need access to funds quickly, a short-term second mortgage can be a good option in the absence of not being able to extend or refinance your first mortgage. You can apply online through an increasing number of mortgage providers, including non-bank and private lenders, to access to funds that can be used for a variety of personal or business uses.

 

Short-term lenders offer long-lasting benefits

Speed, flexibility, and streamlined processes are just a few of the benefits of short-term lenders. Yanis Derums from leading private lender Mango Credit, speaks with Australian Broker about their range of short-term funding solutions for personal or business purposes. Read more >

FOUND YOUR DREAM HOME BEFORE SELLING YOUR CURRENT PLACE?

How to overcome funding glitches with a short-term bridging loan

 

In this article, you will discover how a bridging loan can be a fast and easy way to ‘bridge the gap’ between the purchase of a new home and sale of your current home.

A short-term bridging loan can help you to manage the potentially tricky scenario of purchasing a new home whilst simultaneously trying to sell your current home. If you don’t get the timing just right, you might be faced with the prospect of missing the settlement deadline on your new home, or feeling pressured to sell your current home for a lower-than-expected price due to time sensitivities.

 

What is a short-term bridging loan?

In simple terms, a short-term bridging loan helps ‘bridge the gap’ between the purchase of your new home and the sale of your current home. The good news is there’s a variety of short-term bridging loan providers in Australia, and you can easily apply for bridging loans online.

 

How does a short-term bridging loan work?

A bridging loan is a short-term loan that can be taken out on top of your current home loan until the property is sold. Typically, short-term bridging loans are for up to 12 months and range from $25,000 – $500,000, pending on the lender and your personal circumstances. You can apply for bridging loans online from a variety of lenders, with private lenders offering a relatively simple application process, minimal documentation and fast funding (usually within three to five days from application).

 

When a short-term bridging loan can help

Consider the situation where you find your new home, but have not yet even put your current home on the market. In this common scenario, a short-term bridging loan means you can complete the purchase, and then sell your current home in a more relaxed manner – ensuring you don’t have to settle for a ‘fire sale’ price.

 

What are the benefits of a short-term bridging loan?

Short-term bridging loans have some key benefits, to include:

  • Being able to purchase a new home when you find it – not after you sell your current place.
  • Avoiding a rushed sale, and potentially a lower sale price, of your current home due to time pressures.
  • Avoiding the rental and storage costs often incurred after the sale of your current home, whilst you find your new property.
  • Removing a lot of stress associated with buying and selling at the same time.

It’s also good to keep in mind that a short-term bridging loan can provide a cashflow injection for personal use when:

  • You want to renovate or prepare your property prior to sale
  • You’d like to complete a small land subdivision or duplex intended for sale
  • You need a deposit for a new property (investment or principal place of residence)
  • You require help with moving, living, legal or medical costs
  • You’re seeking to pay a personal bill or debt that can’t wait until the property is sold
  • You’re downsizing

 

Key takeaway

A short-term bridging loan is a very fast and easy way to access cash via equity in your home through the sale period. It avoids the pressure of not being able to purchase your dream home when you find it, or conversely a rushed sale of your existing property.

 

ASSET RICH BUT CASH POOR? CONSIDER A SHORT-TERM LOAN

In this article, we’ll look at short-term loans – why you might need one, the benefits of using them, and the different types of short-term lenders in Australia.


Why you might need a short-term loan

You might have heard the saying “asset rich and cash poor” which describes a situation where you have good security, but lack of access to cash. A short-term loan can be a good solution meet temporary challenges and the ups and downs of cash flow in your business or personal life. Short-term business loans usually have a term of two months to 36 months. Common loan sizes are from $25,000 to $500,000.

Why you might consider a short-term personal loan

One of the most common forms of short-term personal loans in Australia is a bridging loan. As the name suggests, a short-term bridging loan essentially ‘bridges the gap’ between the sale of the original home and the purchase of the new house. As such, a bridging loan can be a good alternative when you need to act quickly to secure a new property and the settlement dates for purchasing and selling don’t match, which is often the case.

Less commonly known is that you can use a short-term personal loan to renovate or prepare your property for sale, or even complete a small sub-division. You might also use this kind of loan to pay off personal debts, such as credit cards or a tax bill.

Why you might consider a short-term business loan

Anyone who has run a business understands that a cash flow crunch can occur for any number of reasons, no matter the size of the business. Short-term business finance provides a simple solution and fast injection of funds to alleviate a credit squeeze and let you focus on running your business.

Backed by equity in your property, short-term business finance can be used to:

  • Purchase new stock or equipment
  • Make wage payments or hire new staff
  • Offset slow-paying customers
  • Pay outstanding tax bills
  • Fulfil a new contract
  • Smooth out time lags between invoice payments
  • Start a business
  • Invest in an established business or buy an existing business

You can also use a short-term business loan to take advantage of a new business or investment opportunity that needs immediate action and funding.

Where you can obtain a short-term loan in Australia

The good news is there are many short-term loan providers in Australia, available from a range of lender types. Here’s a snapshot of the main institutions that provide short-term finance:

  • Banks: Traditional lenders are renowned for offering low-interest rates with strict lending criteria. A bank loan typically suits people with high credit scores (i.e. a good credit history based on paying off debt on time, demonstrated savings, not defaulting on a mortgage payment, and so forth). Banks often have lengthy application and approval processes – which is not ideal if you need funds quickly.
  • Private lenders: As the name suggests, a private lender is an independent financier backed by institutions and investors. As such, private lenders tend to be more flexible in their approach and product offering, and are attractive for those with lower credit scores seeking a fast application and approval process. Private lenders usually charge higher interest on loans, which are often deemed as riskier.
  • Non-bank lenders: These are financial institutions that are not banks, credit unions or building societies. Non-bank lenders don’t offer the breadth of products of traditional funding providers, but they are flexible on rates and fees – and therefore often appeal to self-employed borrowers due to less strict lending criteria.
  • Fintechs: A rapidly growing and dynamic sector within the finance industry in Australia, fintechs use technology to keep costs low (passing that onto borrowers in the form of lower interest rates) and algorithms to better judge risks (ensuring fewer defaults and better deals for approved borrowers).

You can apply online for short-term loans from a variety of lenders, with private lenders and fintechs offering a relatively simple application process, minimal documentation and fast funding (within three to five days from application).

Key takeaway

If you are facing a cash flow shortfall in your business or personal life, and you have equity in your property, a short-term loan can be used for up to 36 months for a variety of purposes.

LOANS TO HELP YOU GET DOWN TO BUSINESS

In this article, we’ll look at short-term business loans – what they are, the benefits of using them, and common uses for quick access to funds for up to 12 months.

What is a business loan?
A short-term business loan in Australia is used for business-related purposes, such as investing in equipment, purchasing, improving cash flow, or debt consolidation. Short-term business loans can help smooth out the business’ financial ‘ups and downs’ or help you take advantage of opportunities to grow your business. Short-term small business loans are usually for $25,000 to $500,000, with a term of 3 to 12 months.

Why you might consider a short-term business loan
Short-term business loans can be used for a range of scenarios, including:
• Business expansion: “It costs money to make money” is the old adage and growing a business is no different. Advertising, hiring new staff, expanding or renovating, are common costs associated with a growing business.
• Inventory: Investing in inventory, including expansion and replenishment, can be tremendously beneficial to boost revenue. Though it’s often a double-edged sword as expensive purchases can hurt cash flow, especially when businesses have seasonal demand.
• Cash flow: Small businesses, in particular, have to deal with cash flow fluctuations when inventory is slow to move or customers are slow to pay.
• Equipment: Purchasing new equipment, or repairing/ replacing existing equipment, is often an unexpected (and hefty) expense that is required to keep the business moving.

The advantages of short-term business loans
A short-term business loan has many advantages, including:
• Easy application process: Apply online for short-term business loans in Australia, with a relatively simple application process from a range of private lenders and fintechs.
• Real-time access to funds: Once you meet the lending criteria and the loan is approved, funds can be accessed in as little as a few days.
• Keep control: A short-term business loan ensures you retain full control with no external interference, which is often viewed as preferable to inviting investors into the business.
• Temporary: Once the loan is repaid, your obligation ends. Whereas in the case of equity finance (investors), you have new shareholders for potentially a long time.
• Tax-deductible interest: Payments are more manageable as the cost of funding business growth (loan interest expense) can be deducted from income generated.

Types of business loans
There is a range of short and longer-term loans available to businesses in Australia:
• Term loan: Borrow a single lump sum to be repaid over an agreed period of time, with fixed or variable interest rates.
• Line of credit: Access funding up to a certain amount that can be drawn down as required to help manage cash flow or pay an unexpected expense.
• Business overdraft: Attached to your business bank account, an overdraft allows you to overdraw up to a pre-approved amount.
• Business credit cards: Business credit cards are convenient, though it’s easy to be stung with high-interest rates if the card balance isn’t paid off in full each month.
• Equipment lease: Funds provided and secured against specific business equipment (or vehicles).
• Invoice financing: Invoice financing, also known as invoice discounting or debtor finance, pays the business the majority of the customer’s invoice immediately, transfers the liability of a customer’s invoice to the invoice finance firm, then takes a percentage of payment once the customer pays the invoice.

Key takeaway
If you own property, a short-term business loan is increasingly being considered as a way to obtain funds relatively quickly. You can apply online for a short-term business loan through a variety of lenders in Australia – particularly through private lenders and fintechs. This form of funding can be used for a short period of time (3 to 12 months) for a variety of purposes.