How Much Can You Afford to Borrow for Your Dream Home?

At Neomoney, we understand that purchasing a new home can be an exciting yet daunting experience, especially when it comes to figuring out how much you can afford to borrow. That’s why we’ve put together this comprehensive guide to help you understand the factors that will determine the amount you can borrow, and how to get started with the borrowing process.

Factors that Determine How Much You Can Afford to Borrow

The amount you can afford to borrow towards your new home will depend on several factors, including:

1. Your Income: The amount you earn and the income of your partner or any co-buyers will play a significant role in determining how much you can borrow.
2. Your Monthly Expenses: Your monthly expenses, bills, subscriptions, transport, medical and health and other commitments, will impact how much you can afford to repay towards your home loan or mortgage.
3. Your Current Assets and Liabilities: Your current financial situation, including any outstanding debts, i.e., credit card limits, personal loans or assets, will be taken into consideration by lenders when deciding how much you can borrow.
4. Your Deposit: The amount of deposit you have saved up will also impact how much you can borrow.

Calculating Your Borrowing Capacity

It’s important to remember that while your income will play a significant role in determining your borrowing capacity, it’s not the only factor that matters. Lenders will also consider your expenses, assets, liabilities, and deposit when calculating how much you can afford to borrow. You may wish to use our Borrowing Capacity Calculator to give you an indicative Borrowing amount bases on your current income and liabilities.

If you’re unsure about how much you can afford to borrow, speaking to a professional credit adviser can help. At Neomoney, we can provide you with different scenarios based on your estimated loan amount from several lenders and different interest rates, and even provide future indicative scenarios in case interest rates rise.

First Home Buyers Exemptions and Stamp Duty

First home buyers may be exempt from stamp duty, but it’s important to factor this in when estimating your borrowing capacity. We can provide helpful checklists in the Tool section of our website that you can print out and refer to during the estimation process. These checklists will give you a quick reference of your estimated financial position that you can use when you call us to set up your loan requirements.

Additionally, just contact us to generate those reports for you.

You can also use our Stamp Duty and Property Fee Calculator to calculate those cots.

Why Knowing Your Financial Position is Important

Knowing your financial position is crucial when it comes to determining how much you can borrow towards your dream home. It will help you set realistic expectations in terms of what type of property you can potentially buy. Plus, getting this out of the way early on in the process will save you from stress and disappointment later during the loan processing stages.

Talking to a Professional Credit Adviser or broker

If you’re still unsure about your borrowing capacity or have questions about the borrowing process, consider talking to an independent professional credit adviser or your broker. They can provide you with further guidance on your financial situation and help you make informed decisions when it comes to purchasing your new home.

If you wish to read more on your borrowing potential, we have a dedicated webpage to maximise your borrowing. Read More >.

What is the Minimum Deposit Required to Buy a House and How to Prepare for it?

One of the most common questions asked by potential homebuyers is “How much deposit do I need?” The answer to this question is not straightforward, as it depends on various factors such as the lender, location, and price of the property.

Traditionally, banks and lenders have preferred a 20% deposit on a home loan. However, some lenders may accept a deposit as low as 5% or even offer a no deposit home loan, depending on the location and price of the property via a guarantor loan.

While a lower deposit may seem attractive, it’s important to note that a deposit of less than 20% may mean that additional loan insurance known as Lender Mortgage Insurance (LMI) is required. This type of insurance protects the lender in case you default on the loan.

One scenario where a bank may not require a deposit for a home loan is where you have enough equity in another property via a guarantor. In this case, the equity in the property acts as security for the loan, reducing the risk to the lender.

Why is the Deposit Important?

The deposit is an important factor in the home-buying process as it shows the lender that you are committed to the purchase and have the financial capacity to make regular mortgage payments. A higher deposit also reduces the risk for the lender, which may result in a lower interest rate or lower Lender Mortgage Insurance premium if the loan to value ratio (LVR) is greater than 80%.

Additionally, having a higher deposit may increase your chances of getting approved for a home loan, as it shows the lender that you have financial stability and are less likely to default on the loan.

To further understand the amount of deposit required, you can read more at this dedicated page on Home Loan Deposits. Read More >.

What Deposit is Required at The Time of Signing the Purchase Contract?

One of the most common questions asked by potential homebuyers is “How much deposit do I need?” The answer to this question is not straightforward, as it depends on various factors such as the lender, location, and price of the property.

Traditionally, banks and lenders have preferred a 20% deposit on a home loan. However, some lenders may accept a deposit as low as 5% or even offer a no deposit home loan, depending on the location and price of the property via a guarantor loan.

While a lower deposit may seem attractive, it’s important to note that a deposit of less than 20% may mean that additional loan insurance known as Lender Mortgage Insurance (LMI) is required. This type of insurance protects the lender in case you default on the loan.

One scenario where a bank may not require a deposit for a home loan is where you have enough equity in another property via a guarantor. In this case, the equity in the property acts as security for the loan, reducing the risk to the lender.

Why is the Deposit Important?

The deposit is an important factor in the home-buying process as it shows the lender that you are committed to the purchase and have the financial capacity to make regular mortgage payments. A higher deposit also reduces the risk for the lender, which may result in a lower interest rate or lower Lender Mortgage Insurance premium if the loan to value ratio (LVR) is greater than 80%.

Additionally, having a higher deposit may increase your chances of getting approved for a home loan, as it shows the lender that you have financial stability and are less likely to default on the loan.

To further understand the amount of deposit required, you can read more at this dedicated page on Home Loan Deposits. Read More >.

How to Get Started & How Long Does the Loan Process Take?

How to Get Started with Your Home Loan and Understand the Loan Process Timelines is why you need to find a Professional Credit Adviser for a Smooth Loan Journey.

When it comes to navigating the complex world of home loans, it’s crucial to have the right guidance and support. Our team of professional credit advisers specialises in the first home buyer market and possesses extensive knowledge and valuable insights to ensure a seamless loan process.

The Journey of a Home Loan: From Initial Meeting to Settlement

1. Client Initial Meeting and Consultation

The journey begins with an essential step – the initial meeting and consultation with your trusted credit adviser. This meeting serves as an opportunity for us to understand your financial goals, assess your borrowing capacity, and discuss various loan options available to you.

2. Collating the Right Loan Documents

After the initial meeting, we will guide you through the process of collating the necessary loan documents. These documents will help us prepare a comprehensive loan submission to the appropriate lender, ensuring that your application is accurate and well-prepared.

3. Loan Submission and First Home Owners Grant

Once your loan application is complete, we will submit it to the selected lender on your behalf. For first home buyers, we will also assist in preparing the necessary documentation to apply for the First Home Owners Grant, which can provide financial support during the home buying process.

4. Coordinating with Conveyancing Solicitor and Real Estate Agent

As your journey progresses, we will work closely with your conveyancing solicitor and real estate agent. This collaboration ensures that all parties are aligned and any necessary arrangements, such as property valuation, are organised in a timely manner.

5. Due Diligence and Loan Approval

During this stage, your solicitor/conveyancer will diligently perform due diligence on the property, ensuring that there are no legal or financial obstacles. Simultaneously, we will liaise with the lender to facilitate the loan approval process. Once your loan is approved, the lender will instruct their solicitors to prepare the Mortgage Documents for your review and signature.

6. Signing and Returning Mortgage Documents

Once you receive the Mortgage Documents, carefully review and sign them. Return the signed documents to the lender’s solicitors, who will then verify and prepare for settlement.

7. Settlement and Post-Settlement Procedures

The settlement stage marks the final steps toward homeownership. Your solicitor/conveyancer will book and guide you through the settlement process, ensuring that all legal and financial aspects are properly addressed. After settlement, it’s crucial to conduct a post-settlement review to ensure that the lender has established the correct loan products and day-to-day accounts as per the initial loan submission.

Understanding the Timelines: From Days to Weeks

The loan process duration varies based on the lender and the complexity of your loan application. While it can take a matter of days for straightforward cases, more intricate loan scenarios may extend the timeline to several weeks. Each lender has their own set of processes and timelines, consisting of up to 45 or more stages from loan submission to settlement.

At Neomoney, we prioritise transparency and effective communication, keeping you informed at every stage of the loan process. Our experience will provide personalised guidance, ensuring that you are well-prepared and confident throughout your journey to homeownership.

Getting started with your home loan journey requires partnering with a professional credit adviser who specialises in the first home buyer market. By understanding the detailed stages of the loan process and the associated timelines, you can navigate the complexities of securing a mortgage with ease.

Why is Home Loan Pre-Approval Important for First-Time Homebuyers?

A home loan pre-approval is a process where a lender, like a bank, reviews your financial situation and determines how much money they are willing to lend you to purchase a home. This process typically involves filling out an application form and providing information about your income, expenses, assets, and liabilities.

Once the lender has reviewed your application and documents, they will give you a pre-approval letter. This letter outlines how much money you can borrow and the terms and conditions of the loan, such as the interest rate and repayment period.

Why Should I Get a Home Loan Pre-Approval?

Getting a home loan pre-approval can be very beneficial if you are in the market to buy a home. Here are some reasons why:

1. Do You Have A Pre-Approval, is the question all real estate agents ask home buyer upon a home viewing. Without a Pre-Approval most real estate agents won’t take you as seriously buyer.
2. Helps you determine your budget: By getting pre-approved, you can know exactly how much money you can borrow and what type of property you can afford. This helps you avoid looking at homes that are outside of your price range and ensures you don’t waste time or get your hopes up for a home that you can’t afford.
3. Gives you an edge in a competitive market: If you are in a competitive housing market, a pre-approval can give you an edge over other buyers who have not been pre-approved. Sellers are more likely to take your offer seriously if they know you are pre-approved, and it can give you a leg up in a bidding war.
4. Saves you time: Once you know how much you can borrow, you can focus on homes within your budget. This can save you time by not looking at properties that you can’t afford and can also speed up the process of finding the right home for you.
5. Gives you more negotiating power: If you are pre-approved, you have more negotiating power when it comes to the price of the home. Sellers may be more willing to lower the price or negotiate on other terms if they know you are a serious buyer who has already been approved for a loan.

What Information Do I Need to Provide for a Home Loan Pre-Approval?

To get pre-approved for a home loan, you will need to provide the lender with some basic information about your financial situation. This includes:

• Personal details such as your name, address, and contact information
• Employment details such as your current job and income
• Details of your assets such as savings, investments, and property
• Details of your liabilities such as loans, credit cards, and other debts
• Information about the property you are looking to buy

The lender will use this information to assess your financial situation and determine how much money they are willing to lend you. It is important to be honest and accurate when providing this information, as any discrepancies could result in your pre-approval being declined.

To further understand the Pre-Approval process, you can read more at this dedicated page on Preliminary Loan Approvals. Read More >.

Factors to Consider When Choosing the Right Type of Property for Your Needs and Lifestyle

When it comes to purchasing a property, it’s important to consider not only your budget, but also your current and future needs and lifestyle. There are several types of properties available, including;

• Apartments,
• Townhouses,
• Semi-detached, and
• Freehold or Free-standing houses.

Each has its own advantages and disadvantages, so it’s important to weigh them carefully before making a decision.

If you have a demanding job or spend a lot of time traveling, a low-maintenance property such as an apartment or townhouse may be the best option for you. On the other hand, if you have a large family, pets, or enjoy gardening, a larger house with a good-sized yard may be more suitable.

It’s important to note that each type of property comes with its own set of costs and responsibilities. For example, houses may require more maintenance, with you covering 100% of the cost, but may provide more privacy than an apartment or townhouse. Apartments may offer a great lifestyle at an affordable price, where common area maintenance costs are shared between the owners of the apartments in the complex. However, you must abide by the rules of a body corporate and consider issues such as noise and how to deal with your close neighbours.

Another option to consider is buying a home “off the plan,” which means purchasing a property (usually an apartment or townhouse) prior to the completion of construction. When buying off the plan, it’s important to have your solicitor or conveyancer thoroughly check all aspects of the contract.

There are also different legal forms of ownership for residential properties, including;

• Strata Title,
• Torrens Title,
• Company Title,
• Community Title,
• Common Law or Old System Title.

These forms of ownership vary by state, so it’s important to ask your solicitor or conveyancer for further information about them.

If you’re considering purchasing an apartment or townhouse, it’s important to understand how a body corporate works. A body corporate oversees the collective responsibility and decision-making in relation to the use and maintenance of the common property in your building. Owners are required to make financial contributions to the body corporate and must pay fees and levies for administrative expenses including maintenance, upkeep, and repair of buildings that form any part of the common property. Owners may also be required to contribute to a reserve or sinking fund to cover anticipated costs of repairs to the building or replacement of essential items or services such as air conditioners, security systems, or lifts.

Body corporates have rules and restrictions that apply to residents, such as restrictions on keeping pets or car parking, or rules about the use of public spaces. It’s important to consider how these regulations may impact on your lifestyle before making a purchase.

Other details to consider when buying an apartment include noise levels, layout of the apartment, security measures, social dynamics, and parking options. By taking all of these factors into account, you can make an informed decision about the type of property that is best suited to your needs and lifestyle.

For further details on buying a property, you can read more at this dedicated page on Purchasing a Property. Read More >.