Home Buying Essentials Guide What you need to know when buying and financing your home
Contents Welcome 2 Overview Purchasing your home 3 Getting started 4 Know your entitlements 4 Borrowing essentials 5 Costs 6 Choosing the right loan 8 Applying for a loan 10 Buying your property 11 A step-by-step guide 11 Tips for repaying your mortgage sooner 12 Our commitment to you 13 1
Welcome Buying a home can be a daunting experience, especially when there are so many things to consider. As a free mortgage broking service exclusive to QSuper members, QInvest LoanFinder is here to guide you through this exciting opportunity and ensure your needs are taken care of in a professional and uncomplicated manner. And because QInvest LoanFinder is from an organisation you know and trust, you can be certain your best interests will always be put first. So if you re thinking of buying your first home, refinancing your current mortgage or purchasing an investment property, talk to us and see how we can make this process easier for you. Our accredited brokers have access to hundreds of home loan products, and take into account your lifestyle and financial commitments to make sure the loan suits your circumstances. Thank you for taking the time to read about the steps to buying a home and obtaining finance. We look forward to working with you in the near future. Kind regards, The QInvest LoanFinder Team 2
Overview Purchasing your home Know where you stand financially There s so much to think about and consider. But first, you need to work out how much you can borrow. This is where we can really help. If you prepare an accurate and detailed budget that lists all your financial commitments, we can help you identify any additional costs associated with home buying - stamp duty, council rates, etc. This will help give you a clear picture of your borrowing capacity and how a new mortgage will affect your lifestyle. Research your area Go to as many open inspections as you can and research properties online before purchasing. This will give you a good indication on property prices in the area you want to buy. Consider options suited to your requirements There are hundreds of lending products available and understanding how they affect your spending is key. This is where our guidance can be invaluable. We ll find an option that is suited to your needs and recommend ways you can reduce the loan faster to avoid the very expensive costs associated with long-term debt. Help is always here We understand that during the life of your loan, circumstances outside your control can change. Be it illness, losing your job, or anything that might affect your ability to service your mortgage, we may be able to help you negotiate a solution with your lender that ensures your best interests are taken into consideration. Understand the costs after purchase A mortgage is a big commitment and you may have to make significant changes to your spending habits in order to meet your repayments. Many homeowners forget to budget for things they haven t paid for previously like electricity, water, other utilities and insurance. We can make sure you don t stretch yourself to your limit, helping you avoid the unnecessary stress of rates increases. Home Buying Essentials Guide QInvest Limited ABN 35 063 511 580 AFSL 3
Getting started Know your entitlements Government assistance First Home Owners Grant The First Home Owners Grant is a Commonwealth Government initiative that was created to help people get a foot in the property market. If you re buying or building your first home, you could be eligible for a government funded grant of up to $15,000 towards the cost of your home loan. For further information on grants in your state visit www.firsthome.gov.au and select the state that applies to you. Stamp duty concessions When you buy a home in Australia, the state government imposes a stamp duty tax. The tax duty varies in amount depending on the sale price of the property and which state you ve purchased in. Concessions differ from state to state and we can assist you in calculating your stamp duty, if applicable. Family Support Help from your parents These days, it s not uncommon for parents to help their children buy their first home, and there are many ways they can do so: gifting at least part of the deposit to their children providing a supplementary loan in addition to the bank loan, typically interest free acting as guarantor. It s important to note there are significant implications relating to parental assistance. Please give us a call for more information on any of these topics. Home Buying Essentials Guide QInvest Limited ABN 35 063 511 580 AFSL 4
Getting started Borrowing essentials Credit reference The lender you choose is going to perform a credit check on you. They ll be looking to see if you ve defaulted on payments, how many credit applications you ve made and if you have had any previous infringements in your name (or company if you are self employed). Make sure you have a clean slate by checking your credit report. If something unusual appears, advise your credit reporting agency immediately. How much deposit will I need? Most lenders require a minimum 10% deposit. If you re borrowing more than 80% of the purchase price you ll be required to pay lenders mortgage insurance, which means an additional cost. We can work with you to determine your requirements and identify ways on how to maximise your deposit. Should I buy with someone else? When you purchase a property with a person you re not married to, or aren t in a de-facto relationship with, the rules on ownership can differ significantly. In this situation, it s crucial that you understand what you re getting into. Make sure there are strict ground rules in place, everything is in writing and the contract is clearly defined. The two most important points you need to cover are what happens if one owner wants to sell, or if they can t meet the repayments. Needless to say, your legal representative should always be consulted if you re considering a share arrangement. Please feel free to contact us if you have any questions. Home Buying Essentials Guide QInvest Limited ABN 35 063 511 580 AFSL 5
Getting started Costs Stamp duty As previously mentioned, the amount of stamp duty payable varies depending on the purchase price of the home and which state you ve purchased in. The following websites contain duty scales, so you can check how much you may be required to pay: ACT NSW NT QLD SA VIC WA Loan application fee www.revenue.act.gov.au www.osr.nsw.gov.au www.revenue.nt.gov.au www.osr.qld.gov.au www.treasury.tas.gov.au www.sro.vic.gov.au www.dtf.wa.gov.au There s generally a standard up-front loan establishment fee that covers the creation of loan documents, legal fees, mortgage preparation and one standard valuation (if applicable). Appointing your legal representative You ll need to appoint a conveyancer/legal representative to ensure the contract is in your best interest and does not contain any unsatisfactory terms. Their role is to: give advice on the contract terms facilitate council, strata and company title searches order pest and building inspections arrange for the signing of contracts negotiate with the vendor s solicitor on your behalf arrange for the settlement process and attend on your behalf deal with any difficulties that arise during the settlement period. It s a good idea to shop around for someone experienced. Inspections Building and pest inspections are a must and are organised by different organisations. Making your purchase contract subject to a satisfactory building and pest inspections will protect you from buying a property with serious issues. The inspector will provide you with a written report detailing any faults with the property, whether they can be repaired and how much they re likely to cost. The document will also highlight any unsafe or unauthorised renovations that can be identified. Pest inspections check for evidence of timber decay and for termite damage. When buying at auction, you ll need to arrange inspections before the day of sale. In the case of a strata title property, your contract of sale will provide the name of the strata manager so that you can arrange for an inspection of the owners corporation books and records. Your legal representative should also check with the local council and advise you of any future developments which could affect your home. Home Buying Essentials Guide QInvest Limited ABN 35 063 511 580 AFSL 6
Getting started Costs (Cont d) Insurances» Mortgage protection and lender s mortgage insurance Mortgage protection is insurance that supports you in the case of involuntary unemployment or if you re unable to work due to illness or disability. However, lenders mortgage insurance (LMI) protects the lender if you default on your payments and is usually required where your deposit is less than 20% of the purchase price.» Home and contents This is insurance that provides you with adequate cover should you need to repair your home or replace your contents if they re damaged, destroyed or stolen.» Income protection This insurance is designed to pay you a predetermined percentage of your monthly income (usually 75%) should illness or injury prevent you from working.» Life Provides a lump sum payment to your beneficiaries in the event of your death.» Total and permanent disability TPD You can choose to cover yourself for either total and permanent disability or death options, which will provide a payout if you can no longer work, or in the event that you die due to an illness or an accident. Home Buying Essentials Guide QInvest Limited ABN 35 063 511 580 AFSL 7
Getting started Choosing the right loan Loan types Standard variable rate This is the most common loan, where the interest rate can vary with official interest rates, but are ultimately determined by the lender. They typically have redraw facilities and offset accounts that give them flexibility. Many lenders will consider a discount or honeymoon rate based upon the size or initial nature of the borrowing. They can be refinanced with another lender, in some cases without exit costs. The interest rates do vary and, unlike a fixed rate loan, the borrower will also experience different repayment rates over the life of the loan. Basic variable rate This type of loan is similar to a standard variable but the borrower sacrifices flexibility for a lower interest rate. This means that offset accounts and redraw features are usually not available. Fixed rate These are loans where an agreed interest rate is fixed for a specified period. It suits a borrower seeking a constant loan repayment who wants to avoid the ups and downs related to variable rate contracts. When interest rates are dropping you can be paying more interest than a variable rate borrower; however, it can also work in your favour when interest rates climb. Some fixed rate loans do not allow additional repayments. Interest only When you have an interest-only loan the principal isn t reduced by the minimum required payment, and will remain unpaid for the interest-only period. After the interest-only period, the loan will convert to a principal and interest loan for the remainder of the term. You might choose to continue on an interest-only basis for another term and defer the conversion to principal and interest. However at some point the lender may force the repayment of principal to reduce their risk. These loans are typically used by borrowers for investment purposes and by borrowers wanting a lower repayment amount than would otherwise apply under a principal and interest loan. Line of credit loans Where a borrower has established equity in their home, they may request a pre-approved credit limit that can be drawn upon at any time. They are often used by those who invest and move funds between investments, giving them the capability to invest borrowed funds with flexibility. The repayments are drawn against the line of credit and the borrowers are required to maintain the credit at an acceptable level. Split rate You can have one portion of the loan at a variable rate and the other at a fixed rate. This is attractive to borrowers who want to limit their risk of increasing interest rates by fixing a portion at an acceptable rate. Home Buying Essentials Guide QInvest Limited ABN 35 063 511 580 AFSL 8
Getting started Choosing the right loan Loan features Professional package These packages combine lines of credit and split loans to service the needs of borrowers with a typically greater ability to invest. They carry discounted interest rates and low account fees. Offset account This is a deposit account where the credit balance or the interest earned is used to offset the interest charged on your loan. Top-up Many lenders allow you to increase the home loan limit on existing loans for renovations or car purchases. The process is relatively simple because security already exists. Our accredited team can help find the right loan for you, please call us to find out more about buying or refinancing a home. Redraw facility This allows borrowers to withdraw payments made in advance on the minimum repayment amount. The payments in advance are reducing your overall interest charges, so redrawing has the effect of increasing your loan balance. Home Buying Essentials Guide QInvest Limited ABN 35 063 511 580 AFSL 9
Getting started Applying for a loan When approaching a lender for the first time, you ll need to be identified. All lenders are likely to ask for the same information, which is 100 points of identification. Examples of 100 points Drivers Licence Passport or birth certificate Rates notice Credit card Medicare card Additional Requirements 40 points (preferred) 70 points 35 points 25 points 25 points Apart from a thorough ID check, the lender will also want to establish your: capacity to repay financial risk collateral existing assets. You ll also be asked: if you have dependent children how long you ve lived at your current address what your owe and own your personal insurances your credit card details. We advise you have: your two most recent pay slips group certificates for the past two years documentation from your employer detailing income and length of employment. If you re self-employed, you should provide your tax returns and financial statements for the past two years, and your accountant s details. Also needed are: savings details bank statements including transaction, saving or passbook accounts investment papers including managed funds or term deposits details of personal loans, credit cards or charge cards tax liability if self-employed. Details of life insurance policies and superannuation, as well as approximate value of other assets like furniture and jewellery should be included. Loan approval It s best to have your loan pre-approved before you make any offers. Knowing your borrowing limit and that your finance is pre-approved will mean you re able to concentrate on a price range and give your full attention to the purchase. Once your loan is formally approved, your lender will send your mortgage documents to sign. Your solicitor can then assist you with any questions you may have in relation to your mortgage documents. Home Buying Essentials Guide QInvest Limited ABN 35 063 511 580 AFSL 10
Buying your property A step-by-step guide Step 1 Have your loan pre-approval in place Knowing how much deposit you have and how much you can borrow will give you the confidence to make a calculated offer on your property. Step 2 Choose the right home in the right location Research your chosen suburb thoroughly, talk to local real estate agents, neighbours and search the Internet. Make sure you know the price of recently sold, comparable houses, visit open houses and attend auctions. The more knowledge you have about the area, the more chance you have of landing a great deal. Step 3 Make an offer For properties sold by private treaty, you ll need to make an offer to the listed agent. Properties being auctioned are frequently open to offers before the auction date. However, if sold at auction, you ll usually be required to pay a deposit of 10% immediately. Remember that the contract for an auctioned property is unconditional and no cooling off period applies. Make sure that your conveyancer/legal representative has checked the contract and organised pest and building inspections before you bid. Step 4 Conveyancer/legal representative The real estate agent will provide a copy of the contract for sale, which should then be given to your conveyancer/legal representative who ll check it and advise you of your rights during the cooling off period. Once both parties have signed the contract, it becomes legally binding. Step 5 Conditional approval When the lender has assessed your loan application, approval might be subject to meeting a number of conditions. In order to obtain final (unconditional) approval, these stipulations need to be met and may include an acceptable valuation of the security property, mortgage insurance approval, along with any other conditions the lender requires. A conditional approval can also be given if you re looking to purchase, but want to know how much you can borrow before committing to the contract. Step 6 Final loan approval Once your loan has been formally/unconditionally approved, you will receive your mortgage documents. These need to be signed and witnessed and returned to your lender. Step 7 Insurance Your lender will require you to organise building insurance, which will be required prior to settlement. Step 8 Final inspection It s a good idea to arrange an inspection with the real estate agent just prior to settlement date. Check all inclusions in the contract for sale and see if they re in working order light switches, power points, air conditioners, exhaust fans, hot water, swimming pool equipment, security, etc. Step 9 Settlement Your conveyancer/legal representative will attend to settlement. This is the day when the balance of the purchase price is paid to the vendor and stamp duty as well as lenders mortgage insurance will also be due. If something goes wrong If you ve signed a contract to buy a house, it may be a costly exercise to withdraw. If you wish to break the contract you may be liable to pay compensation to the vendor. The amount will depend on the loss suffered by the vendor and is usually based on how much it would take to re-sell the house, including any subsequent loss on sale. We can t stress how important it is to read your contract carefully and to be aware of the consequences of defaulting on the contract. You should always consider legal advice before committing to any purchase agreement. Home Buying Essentials Guide QInvest Limited ABN 35 063 511 580 AFSL 11
Buying your property Tips for repaying your mortgage sooner Make extra repayments The most common mortgages for home buyers require you to pay principal and interest. On a typical 25 year mortgage, anything extra you pay in the first five to eight years are key to reducing the life of your loan. Make extra repayments as early as you can, no matter how small they are. Make more frequent repayments When you make fortnightly repayments you make more repayments each year (26 fortnights compared to 12 months). As long as you meet the minimum repayment amount each month and your loan contract allows them, more frequent repayments will make a difference to the term of your loan and your interest cost. Make your repayments as often and as regularly as your income allows. Make an annual lump sum payment Use your tax return or a windfall, such as an inheritance or work bonus, and apply it directly to your principal. Check your mortgage documents to find out how often you can prepay and in what amount. Redraw facility A redraw facility allows you to make extra payments and then withdraw them if required. It means you can put all your rainy day money into the account where it will reduce your interest, while knowing you can take it out if needed. This type of option might attract a fee for each withdrawal, and may be set to only a few redraws each year. Consider how often you re likely to redraw before deciding whether this feature is for you. If interest rates drop If you have a variable home loan and the interest rate drops, continuing to pay the loan at the higher rate will save you interest and reduce the effective term of the loan. Stay informed Keeping up to date with interest rates and being proactive about your home loan could help save thousands in the long term. Because of the competitiveness in the lending sector, chances are there s a better deal elsewhere. We can help you get the best deal possible, and even review your mortgage annually so you re always getting the best deal possible. Home Buying Essentials Guide QInvest Limited ABN 35 063 511 580 AFSL 12
Our commitment to you We understand that your first home loan will not necessarily be your last. We are your ally through the maze of borrowing options and the buying process. By using our services, you will have a specialist dedicated to looking after your interests. Mortgage brokers also give you exposure to lenders that you might not be aware of, and our experience saves you time and money. When we help you with your first home loan, we consider you to be a client for life. We will look after your initial needs and also consider your future needs. We want you to be confident that you are working with someone who has your best interests in mind now and in the long term. Why use QInvest LoanFinder? QInvest LoanFinder will help you pay off your loan sooner Free service, exclusive to QSuper members Accredited brokers from QInvest working for you Access to hundreds of home loan products A reliable service from an organisation you know and trust. 13
QInvest Limited PO Box 15318 City East Q 4002 Toll free 1800 643 893 T 07 3008 8100 F 07 3008 8111 E info@qinvest.com.au W qinvest.com.au QInvest Limited (ABN 35 063 511 580, AFSL and Australian Credit Licence number 238274) (QInvest) is ultimately owned by the QSuper Board (ABN 32 125 059 006) as trustee for the QSuper Fund (ABN 60 905 115 063), and is a separate legal entity which is responsible for the financial services and credit services it provides. QSP0125