The property market is a little bit like the board game monopoly. The bank has endless amounts of money to lend and never goes broke, the person who gets the highest roll of the dice goes first (in reality the person who has the highest bid at auction wins), and if you have a mortgage you have to pay the bank interest. But unlike the board game, there is no rule book to follow, which can raise a lot of questions. If you’re currently renting and deciding whether it’s a good decision to buy, we recommend your read on. We also have developed answers to the most commonly asked questions we receive from what is a mortgage broker to what is a LMI? This blog is the ultimate answer to all your property questions.
Is it better to buy or rent?
To rent or to buy, that is the question. This question is usually dependent on personal preference and your current financial situation. Some people like the financial freedom of living life without having to repay a mortgage, they can usually live in the inner city suburbs as it’s more affordable and have the added perks of a convenient lifestyle usually located close to trendy shops, cafes and transport. On the other hand, some people like the security of knowing that they own their own home, they can’t just get kicked out whenever their landlord feels like it and there is more stability in their living situation. There is also a large financial burden and responsibility that comes with owning a home, spontaneous trips become a thing of the past and you must be more responsible with your money.
Having said that, once you do crack into the property market it does become a lot easier to build a property portfolio and to establish some financial routine. Whilst you may make sacrifices in the now, in the future you will have a home that’s your own, no more moving house every few months or years, and no more living with the parents.
|Pros of buying||Pros of renting|
Grow your property portfolio and gain more assets
Avoid paying rent
Take advantage of current homeowner grants and incentives
Customise the house of your dreams
Not locked into one property
Live inner city
More disposable income
Can invest your money in other avenues (bonds & stocks)
|Cons of buying||Cons of renting|
Stamp duty & LMI
|Ongoing rental costs|
Lack of privacy and security
Hard to customise the home of your dreams
Should I buy a new or old property?
Pros to buying new:
- Greater opportunities for customisation from colour schemes to custom TV wiring.
- Built sustainably – with inclusions such as double glazed windows, which have the benefit of double insulation
- Modern technology inclusions -such as smart technology, sustainable/energy-efficient appliances
- Builders have to follow very strict guidelines for new-homes and additions. New homes are usually more fire-safe and better accommodating of new security and garage-door systems
- Low maintenance for you to keep up with as new features and without a huge garden to maintain, you can have your Saturdays back to relax.
Pros to buying old:
- Older homes can be better judged for their quality, character and timeless beauty
- Older homes tend to showcase larger back and front yards that come with established landscaping
- Great locations- generally establishd homes are located in unbeatable locations, cloes to amenities, transport and schools
Should I buy a house, townhouse, or apartment?
Let’s begin by understanding what each of these are. A house is a stand alone property in which the owner has bought the title to. A townhouse is a compact multi level home, in which you can own the house title but share the land with others. An apartment is flat within a larger building complex, you will own your property however you will share common property, such as gardens, gyms and car parks, with other residents. Now that we have a better understanding of these we can discuss the finer points.
Tend to be expensive and may be more difficult to afford in some cases
Townhouses tend to be cheaper than houses, but more expensive than apartments
|Mid – Low|
Apartments tend to be more affordable property options
|Maintenance||A large amount of maintenance|
Areas include garden area, nature strip and the house itself
|A moderate amount of maintenance|
As it is likely you will have a small garden space to look after along with the house itself
As the body corporate will maintain common areas
Houses in the more popular suburbs will be snapped up quickly or become very expensive, so it may be hard to secure your dream location
|It can be more affordable to buy a townhouse in a popular area than purchasing a house in the same area||Tend to be centrally and idyllically located, close to public transport and shopping centres|
|Convenience||You can choose a location that is most convenient for your lifestyle, as there are houses all over Victoria||As townhouses are more affordable than houses, you will have a better chance of buying one in the location that is most convenient for you||Due to apartments’ generally central locations, they’re conveniently located near public transport, shopping and a large range of services|
Ultimately, the last factor you need to consider is your preference. What is it that you really want?
If you’ve decided to buy a property, you probably have a thousand and one questions about the process well, we have summarised some of the most commonly asked questions we receive, to help you have a seamless property buying experience.
What is a mortgage broker?
A mortgage broker works with banks and lenders on your behalf to arrange a home loan. You can find yourself a mortgage broker through banks, mortgage broker agencies, and by seeking out individual agents. Brokers will then be able to assess your finances and show you the different loans applicable to your financial situation.
What is the difference between being pre-qualified and pre-approved for a loan?
If you’re pre-qualified it means that you could potentially get a loan for the amount stated to you, assuming that all of the information you provide to the bank is accurate and true. This can be a good way to estimate a loan amount, however is not as strong as a pre-approval.
If you’re pre-approved, it means that you have undergone the extensive financial background check, which includes looking at your credit history, previous tax returns and verifying your employment – and the lender is willing to give you a loan! Please note, while they’re willing to give you a loan, if your financial situation changes they may opt out. Considering this, pre-approved is not absolutely certain that you will get the loan.
Can I sign a contract with a pre-qualified or pre-approved loan?
A pre-qualified loan is more or less a ballpark estimate of what type of loan you may qualify for. It would be not substantial enough to confidently qualify an exact amount of hold enough merit to sign a contract.
In the case of a pre-approved loan, you can sign a contract as long as the selling conditions allow for it. However, this can be a risky option as a pre-approved loan still has a chance to fall through. If you sign a contract and the loan is not given to you, you may find yourself stuck in a difficult situation, having potentially lost money in deposits.
Considering this, many choose to opt for a ‘subject to finance’ clause. This states that you legally agree to buy the property provided that your loan is approved. This gives you some time to organise your loan and will protect you from losses in the case of a failed application.
How is interest calculated on a mortgage loan?
Most mortgages calculate interest in arrears, unlike consumer loans which calculate interest to the date of payment receipt. This method varies slightly between lenders, with most lenders working on a 365-day calendar, others using a 360-day calendar. In addition to this, factors such as your loan amount, rate of interest, and how frequently you are making repayments all contribute to the amount of interest your mortgage loan will accumulate.
- If your loan balance is $300,000, and your interest rate is 3.54%, your yearly interest would be $10,620 (300,000*0.0354), and for the entire month of March you would pay $902.10 (29.10*31).
Fortnightly and weekly payments generate less interest for you to pay. This is because weeks and fortnights will always be calculated by 7 or 14 days, rather than months which vary in length.
How long does the loan process take?
The loan process can vary depending on who your lender is. In an ideal scenario, it will typically take 3-7 days, however more complex situations can drag this process out.
If you’re in a rush, there are a few ways to speed this up! These can be quite simple things, such as providing all the up-to-date documentation as soon as it is asked for and reading documentation carefully so you can sign it as soon as you understand the terms. Although they seem quite straightforward, disclosing information quickly will allow you to push the application process along faster!
What is title insurance?
Title insurance is insurance that protects the lender and buyer against any losses incurred from disputes over the title of a property. This can protect against unknown risks when the contract was signed, such as illegal constructions, forgery and other title issues.
How can I avoid lenders mortgage insurance?
Lenders mortgage insurance (LMI) is a payment that has been introduced to protect the lender in the case that the borrower does not meet their home loan repayments.
The easiest way to avoid LMI is by putting down a bigger deposit to reduce your loan to value ratio. By putting down a 20% deposit, you will be meeting the lenders requirements and thus only be borrowing up to 80% of your properties value. As the loan to value ratio will signal your risk as a borrower, putting a larger deposit down will reduce this perceived risk and help you avoid LMI.
Try and save more money to reach a 20% deposit as the average LMI is $20,000. This is a lot of money to have to pay, without getting your loan down.
Is there a minimum credit score?
A credit score is a numerical value that expresses your creditworthiness, with higher numbers representing a better borrower. There is no hard and fast rule as to what the minimum credit score is that can secure you a loan, as each lender uses different formulas to determine whether you are suitable for a loan. Despite this, there is a rough guide which can help give you an idea of where your credit score may sit in the eyes of lenders:
- Below 625. It may be difficult for you to get a home loan, but you may find opportunities with second-tier lenders
- 625-699. You may have some negative spots in your credit history, however, your financial situation is relatively stable. Lenders may be likely to ask for a larger deposit to reduce their risk in lending
- 700-799. You’re in a pretty good situation, but if you were hoping to get a loan from one of the larger lenders, they may require a bigger deposit
- 800-899. Most lenders will feel comfortable considering your loan as you are seen to be creditworthy
- 900-1,000. It should be quite easy for you to find a lender. Your high credit score shows you to be reliable and a good quality borrower
Is it better to buy an established home or off-the-plan property?
|Pros for buying established||Cons for buying established|
|An established home is ready to go – you can move in as soon as the house is empty||An established home may require some repair work, as it can be hard to tell the condition of the house before you have moved in|
|An established home has its own unique character||Potentially expensive depending on the location, such as closer to the city or affluent suburbs|
|Buying an established home also often comes with finished landscaping which could potentially take a great deal of effort to set up yourself|
|Pros for buying off-the-plan||Cons for buying off-the-plan|
|Off-the-plan will offer customisation so you can have the home of your dreams, perfectly suited to your style||It’s not move in ready meaning you have to wait for project completion|
|You’ll be getting a brand new house, constructed to a high standard with new modern features||Not having an exact completion date|
|Buying a newer house could be a better investment for future resale value|
Should you buy your first home as an investor or an owner-occupier?
Being an investor first is a great way to earn and save money. However, this would forfeit your ability to apply for a number of first homeowners incentives, in which you are required to live in the house you buy to be eligible. Ultimately no one can tell you which is better, it’s up to you to decide what you want to use your first home for.
What are these first home owner incentives, you’re asking? Well let us tell you!
- First Home Owner Grant – a $10,000 incentive available to eligible first home buyers for a property that doesn’t exceed $750,000
- First Home Buyer Duty Exemption – First home buyers may be eligible for an exemption if their property dutiable value must not exceed $600,000. Alternatively, they can apply for duty concession if their homes dutiable value is between $600,001 and $750,000
- Stamp Duty Savings – if your property is valued up to $1 million, you may be able to take advantage of 50% off stamp duty savings on the transaction taxes charged to you
Who pays the realtor fees when buying a home?
Typically, rather than charging either the buyer or seller, the realtor tends to take a commission of the sales price. So if you’re looking to buy a house, there’s no need to worry about realtor fees!
Can a home depreciate in value?
Generally, real estate rarely depreciates in Australia, or more so, it is not very common for property to depreciate. This is why it’s a great investment. While yes, some houses will begin to depreciate if they were not built to last, this is far outweighed by the land appreciation that you will see. This is why it is so important that you carefully consider location and community when choosing a home.
If you are in a newly developed area, do some research on the construction of the surrounding areas being developed to determine if they could affect your home’s value.
So there you have it! Our most frequently asked questions answered for you. We know that finding a new home isn’t an easy decision and not something you want to rush into! So take some time to consider these points discussed, and you should feel more confident to get out there and find your dream home. Whether that’s new or old, buying or renting, the right choice is whatever suits you best. Happy house hunting!
If it’s new apartment developments you’re after, why not check out the projects at Cornus Developments. We currently have three projects available the Cornus Malvern East II, Cornus La Frank, and the Cornus Carnegie.