Sealing the home loan deal

That moment when the real estate agent hands over the keys to your new property is priceless. But before you get to the final approval stage and land yourself a standout home loan deal, there are a few things you’ll need to do.

From the initial research through to home loan pre approval, here’s the varying stages to sealing the home loan deal:

The first thing you should do is enter your details into our borrowing calculator to see how much you could potentially borrow based on you (and your partner's) current financial situation.

Let’s use the example of newlyweds Jacqui and Bobby, whose combined income is $100,000. Our calculator shows they could afford to borrow around $575,000.

After you’ve worked out your borrowing power, you should also see what kind of ongoing repayments you’ll need to budget for.

For instance, our repayments calculator shows that on a $575,000 loan with a 5% interest rate over 25 years Jacqui and Bobby’s monthly repayments would be $3,361.

If this amount seems to high for the couple they could decide to:

• Extend the loan to a 30 year period, bringing their repayments down to $3,087
• Opt for an interest only loan for an introductory period, which would bring their repayments down to $2,396
• Borrow a smaller amount

Once you have an idea of your borrowing power and the amount you want to borrow that falls under this cap, your next step should be working out the type of property you would like to buy using online property search engines like realestate.com.au or domain.com.au.

For instance, say Jacqui and Bobby want to borrow less than their borrowing power allows to give them a bit of financial wiggle room and decide that they will look for a property worth $550,000. In the Sydney market that amount will buy them either a 1 bedroom apartment within close proximity to the CBD or a 3 bedroom apartment in Sydney’s Western Suburbs.

Next up you’ll need to ensure you have a decent deposit before you apply for a home loan deal. The recommended deposit amount is usually 20%, however there are some lenders that allow first home buyers to borrow up to 95% of the property value. Keep in mind if you do decide to go for a low deposit home loan you’ll have to pay lenders mortgage insurance.

Here’s the different deposit amounts, based on Jacqui and Bobby’s scenario of a $550,000 property:

10% deposit

$55,000

15% deposit

$82,500

20% deposit

$110,000

Jacqui and Bobby will also need to save for some other costs that include stamp duty, a mortgage registration fee and a transfer fee. Our stamp duty calculator shows all these fees will cost them $20,569, as they are first home buyers from NSW planning to live in the property. So if they decide to only save a 5% deposit, Jacqui and Bobby would need to save a total of $48,069. They should also budget a couple of thousand for any home loan application fees, building inspection fees and solicitor fees.

Another option available to Jacqui and Bobby could be asking one of their parents or a family member to go guarantor, which would mean the guarantor would put up a portion of their own home as security. In this case, Jacqui and Bobby would only need to save up the cost of the above fees and may be able to take out a home loan without a deposit.

Are you a first home buyer? Stop by our first home buyers hub for helpful articles, tips and tools.

There’s plenty of choice when it comes to searching for a home loan deal, so here are some of the things you should be thinking of when you begin your comparison:

Interest rate: Shopping around for a home loan deal with a low interest rate could save you big bucks. For instance, Jacqui and Bobby’s $522,500 home loan ($550,000 - 5% deposit) would cost $393,845 in interest over 25 years with a 5% interest rate. Whereas, a 4.5% interest rate would set them back $348,767 in interest - $45,078 less in interest.

Comparison rate: A great rate may be appealing but if the home loan deal has high fees you haven’t budgeted for it could end up negating the savings made by the low rate in the first place. The solution? Check the comparison rate, which merges the rate and the fees, as this will give you a more realistic idea of how much the home loan will cost you.

Fees: The common fees that are found with home loans include an application fee which the lender charges to cover any upfront costs and an ongoing fee usually charged on a monthly basis. If you go down the path of a fixed rate loan you could also be slapped with a breakcost fee if you try to exit the contract and switch to another home loan provider within the fixed period. So always see what these fees are to ensure you don’t get caught out with an unexpected cost down the track.

Features: Did you know you could slash the interest you pay and the life of your loan through making extra repayments or stashing your cash in an offset account? Yep, it’s true. That’s why it pays to not only hunt down a home loan deal with a great rate and low fees but flexible features to match. Find out more about how much flexible features could save you, by reading our Home loan features in a nutshell guide.

A home loan might have an appealing headline rate and features to boot but if the provider of the mortgage has poor customer service then managing your home loan could become a major headache. The best way to see how the provider rates on everything from its products to convenience, is by seeing what other customers like you have to say. So head on over to our Rate & Review section for the inside story.

Before you apply for a home loan, it’s important that you keep your credit score in the black, by ensuring you pay all your credit card, personal loan and utility bills in full and on time each month. You should also avoid making any sudden changes to your lifestyle in the lead up to taking out a home loan. So don't move jobs or apply for any new phone contracts or credit.

Not sure what your credit score is? You can get a free copy of your credit report online.

Once you’ve settled on a home loan package, it’s worth seeing if you could land yourself an even better home loan deal by haggling.

There are several methods of negotiating on your home loan. The first is by comparing the home loan market (see stage 5 above) and asking the provider you want to sign up with if they can match lower rate home loan deals.

Another way of dropping the rate and fees, is by telling the lender you’re willing to move over your other banking products like your credit card, bank account and or savings account if they offer you a better home loan deal. This is called bundling your products.

Uncomfortable with negotiating? No worries. Just give our free home loan negotiating service a call and we’ll haggle you a standout home loan deal on your behalf.

The next stage is to organise your pre approval, which shows that the lender has assessed you for the loan and is happy that you fulfil their borrowing criteria. They will then send you a form which outlines your home loan pre approval, which you can show to real estate agents and sellers and you can then head to the next stage…

With home loan pre approval you will usually have 3-6 months to find a property to make an offer on. At the end of this period, if you haven’t found a property you can reapply for the pre approval, however keep in mind the lender will need to reassess you.

Once you have made an offer and the seller has accepted, you will exchange contracts and transfer your deposit to the seller. You can add to the contract “subject to finance” and then organise your final approval.

You’ve almost made it! All you have left to do to secure the home loan deal is contact your lender to let them know you’ve made an offer. They may decide to conduct a valuation of the property you’re seeking to purchase to ensure that you’re paying market value (AKA not too much) for the home.

Once they are happy that you’re paying an appropriate amount, they will settle your home loan by giving you formal approval and will transfer the remaining funds (minus your deposit) to the seller.

You will then need to pay for the cost of stamp duty and registration and your provider will contact the Land Titles Office to register your mortgage and the title deeds.

Then that joyous moment occurs when the real estate agent hands over the keys to your property and you’ve officially sealed the home loan deal!