Home Finance Options and Tips

When considering buying a land or a house, one of the first considerations of how to make your dream home a reality is how you will pay for it.

The good news is, whether you are a first time home buyer wanting to make your leap onto the property ladder, or looking to buy for a second or even third time, there are many different types of finance options available.

We consulted with Resolve Finance’s managing director Don Crellin and GWB Finance mortgage and finance broker Geoff Burden for expert advice on navigating finance options. 

Where Should I Start When Looking to Buy a House?

Securing financing for your home can feel overwhelming. The key to a smooth process lies in making informed decisions and understanding the landscape of home loan repayments and interest rates. A strategic approach to selecting your finance options begins with seeking professional guidance.

It’s a good idea to engage the expertise of a reputable mortgage broker who will work with you to understand your goals and offer finance options tailored to your individual needs. This initial step is vital in putting together a successful loan application.

“However, understanding what lenders look for when assessing applications can also help borrowers prepare and boost their chances for securing a loan”, Mr Crellin said.

Mr Burden emphasised the value of consulting with an experienced mortgage broker early in your home buying process. A good broker will not only clarify the options available but also ensure that your application is as strong as possible right from the start.

“A lot of people come to me with preconceived ideas of what their family or friends tell them what they should get”, he said.

“Probably the overriding thing is, what suits your brother or sister or best friend may not be the best lender or loan option for you. So it’s really important that the lender and loan product is tailored to what your requirements are.”

What to Consider When Exploring Finance Options

The home buying process requires careful consideration of various factors that lenders evaluate when reviewing your loan application. Here’s a closer look at the essential elements to keep in mind as you explore your finance options:

Savings

Your savings history is a key indicator of your financial health and discipline, which lenders will closely examine.

“They will be looking for a regular pattern of savings and will be trying to determine your ability to repay your loan, which is why, as a rule of thumb, they will want to see you making regular deposits into a separate account that has an increasing balance.” Mr Crellin advised.

“So, it is about demonstrating that over and above your normal expenditure, you have the capacity to put away a little more”, he said.

Expenses

Banks will examine all of your expenditure, no matter what it is. Discretionary expenditure includes entertainment, travel, clothing and food. Keep in mind that expenses as small as Netflix will be assessed. 

Carefully going through your bank statements item by item allows you to identify what expenses are essential and which ones you can do without. If you can reduce your level of expenditure, then you should.

Debt

When you apply for a home loan, lenders will consider your credit cards as if they are maxed out, and you’re only making the minimum payments each month. While lenders vary slightly in how they calculate the monthly repayment commitment, on average, most lenders will apply a percentage in the range of three per cent. For example, if you have a credit card with a $10,000 limit, lenders will assume you need to pay about $300 each month. It’s crucial to lower your debt and credit limits as soon as possible to improve your loan application.

Mr Burden also highlights that it’s important to understand that things like car loans and credit card debt could affect your borrowing limit.

“Having too many or too high credit card limits can cause a massive reduction in borrowing capacity. So do personal and car loans—all of that can reduce your ability to borrow what you want”, he said.

Banks will also pay attention to how you manage credit.

“Make sure you pay all your bills on time—don’t be late or miss any credit card payments. There is this thing called ‘positive credit reporting’, which means that financial institutions can see much more information regarding people’s payment conduct and credit history than they could before”, Mr Burden warned.

Employment

One of the key pieces of any credit assessment is the ability to repay a loan.

“Lenders pay close attention to your job situation when evaluating your loan application”, explained Mr Crellin. 

“They’re interested in the stability of your income, which includes the nature of your job, the sector you work in, how long you’ve been with your current employer, whether you’re on probation, and if your previous jobs were in similar fields”, he said. 

It’s important to understand that lenders evaluate many aspects of your financial life—such as your savings habits, spending patterns, existing debts, and employment stability—when considering you for a home loan. By improving these specific areas, you can better position yourself as a strong candidate for a loan.

Different Types of Home Loans in Australia

From low deposit home loans to no or low deposit house and land packages, there are many choices available when it comes to securing finance for your new home. Here are a few of the many different home loan options available in Australia:

Low Deposit Home Loans

Many customers believe that they need a 20 per cent deposit to achieve home ownership. However, many lenders will lend up to 95 per cent, which will either be inclusive or non-inclusive of lender’s mortgage insurance, Mr Crellin explained.

“When a loan to value ratio is higher than 80 per cent, a lender will charge this insurance.”

“Lenders mortgage insurance shouldn’t necessarily be viewed in a negative light, however.  Having low deposit home loans available allows home buyers to enter the property market at a time that is right for them”, he said.

Fixed vs. Variable Home Loans

The choice between a fixed and a variable interest rate is pivotal. A fixed rate loan provides stability, locking in your interest rate and monthly repayments for a set period. Variable rate home loan, however, offers flexibility; your interest rate may fluctuate with market changes, potentially lowering your repayments.

Interest-Only Home Loans

These loans allow you to pay only the interest on the borrowed amount for a specified period, usually up to 5 years. This option can lower your initial repayments but requires careful consideration of future financial impacts.

Self-Employed Home Loans

Tailored for business owners and freelancers, these loans consider alternative documentation to prove income and financial stability, accommodating the unique circumstances of self-employed individuals.

Split Rate Loans

Combining the certainty of fixed rates with the flexibility of variable rates, split rate loans allow you to allocate a portion of your loan to each, balancing stability with the opportunity to benefit from rate decreases.

Variable Rate Loans

With interest rates that adjust over time, these loans are linked to market conditions, offering potential savings when rates decrease but requiring financial flexibility to accommodate rate increases.

Line of Credit Loans

For homeowners with existing equity, a line of credit loan provides flexible access to funds, allowing you to withdraw up to a certain limit and only pay interest on the amount used.

House and Land Packages

When choosing to build a new home, many people decide to buy a house and land package.

“There are finance benefits associated with [a house and land package]. It means customers only need to apply for one loan that will cover both, as opposed to purchasing land only and then adjusting their finances at a later stage”, Mr Crellin explained.

To help you understand which option is best for you, Mr Crellin advised home buyers to speak to a mortgage broker.

“The broker will investigate products from a panel of over 25 lenders and will work with the customers to determine their individual requirements and recommend a loan that best suits their needs”, he said.

“It is also important that the customer looks at all aspects of their home loan and doesn’t only focus on the interest rate. Whilst the interest rate is important, the features and benefits can be just as important in ensuring that it takes into account your individual circumstances,” he explained. 

Understanding Interest Rates

Interest rates are crucial in determining your monthly repayments and the overall cost of your home loan. Choosing between fixed rate home loans and variable rate home loans significantly affects your financial planning.

Fixed interest rate loans lock in your monthly repayments for a certain period, offering stability but less flexibility if interest rates fall. On the other hand, variable rate home loans adjust with market changes, potentially lowering your repayments and offering the chance to decrease your loan balance quicker through extra repayments. Split rate loans provide a balance, fixing part of your loan’s interest rate while keeping the rest variable, allowing for both security and flexibility.

The comparison rate is another crucial factor to consider. It includes both the interest rate and most fees and charges related to the loan, providing a more accurate reflection of the total cost of the loan. This rate is especially helpful when you compare home loans to find the best deal.

Understanding these aspects of interest rates—how they impact your property value, the total loan balance, and your principal and interest repayments—is key to choosing the right home loan. 

State-by-State Finance Options

Across Australia, various states offer unique finance options and grants to support first home buyers in their journey towards homeownership. These programs are designed to make buying or building a first home more accessible and affordable. Here’s a breakdown of some key initiatives available in Queensland, Western Australia, and Victoria:

Queensland

• First Home Owners’ Grant: Designed to help homeowners get into their first home faster, the Queensland First Home Owners’ Grant is a $15,000 or a $30,000 payment towards the purchase or building of a new home. It’s available for the purchase of new townhouses, units, and houses, as well as for buying off-the-plan or building a home. The home’s value, including the land, has to be less than $750,000. 
• Queensland Housing Finance Loan: This loan is offered to people who can’t obtain finance from a bank or building society but are able to afford to build or buy an established home. People who meet certain eligibility criteria, which includes having a household income under $141,000, no significant debts, having a savings history and being able to afford the repayments, are eligible. 

Western Australia

• First Home Owner Grant: This one-off payment is for people building or buying a new home. The $10,000 grant is available to eligible first homebuyers who are building, buying off-the-plan, or purchasing newly built homes. For properties located south of the 26th parallel of South latitude, which includes all Perth metropolitan areas, the combined value of the land and building must not exceed $750,000. However, for those situated north of the 26th parallel of South latitude, the value cap increases, allowing the combined value of the land and building to reach up to $1,000,000.
• Keystart Homes and Finance: Keystart is an initiative of the WA State Government which aims to provide an affordable pathway to home ownership. Keystart’s Low Deposit Home Loan requires a deposit as low as two per cent. You can use the loan for an established home or to build, and there is no lender’s mortgage insurance.

Mr Crellin explains that Keystart loans have lower entry costs, low deposit requirements and no lender mortgage insurance, which could save customers thousands of dollars.

“A customer can access these products by speaking to their mortgage broker who will be able to provide additional information about Keystart’s lending criteria,” he said.

However, Mr Burden emphasised that even though no lender’s mortgage insurance could save thousands of dollars in borrowing costs, there is a higher interest rate on the variable loan.

Victoria

• First Home Owners Grant: The $10,000 First Home Owner Grant is offered to homebuyers buying or building their first home. It’s available for the purchase of new townhouses, units, houses, and apartments valued at $750,000 or less. The property must also be the first sale as a residential premise.
• The Victorian Homebuyer Fund: The Victorian Homebuyer Fund is a shared equity scheme designed to make homeownership more accessible in Victoria. With just a 5 per cent deposit, eligible buyers can receive up to 25 per cent of the purchase price from the government, reducing their mortgage and eliminating the need for lender’s mortgage insurance. Aboriginal and Torres Strait Islander participants may only need a 3.5 per cent deposit for up to a 35 per cent equity contribution. This initiative requires participants to gradually buy back the government’s share, without interest charges, but sharing in any capital gains or losses.
  

Satterley is renowned across Western Australia, Victoria, and Queensland as a trusted and esteemed residential land developer. Each Satterley estate is designed with you in mind, offering a blend of lifestyle and convenience. Discover the perfect estate for your new home in these regions.

For detailed information on finance options available in other states, or to explore the best financial pathway for purchasing your dream home in a Satterley estate, we recommend consulting with your financial provider. They can offer tailored advice and solutions that align with your personal circumstances and home ownership goals.