Money & Living
We get questions about home loans all the time – some more than others. Today, we’re going to answer them. Here’s the top 5 questions you’re asking about home loans.
1) Question: Is buying better than renting?
Answer: It depends.
We say it depends, because it depends on what you want – there are pros and cons to both situations.
Buying means you have a mortgage and you will be paying that off for the next few years. As part of that mortgage, you will also need to pay interest. Interest is the payment you make on top of your loan for borrowing from the bank. Interest is kind of like rent – you’re renting the money from the bank. Interest on a per annum basis can add up to more than what you what have paid in rent in a year. But the pro is – you own your house and you can do what you want to it. You also know where you’re going to be living for the next few years providing you with stability.
When you’re renting, the advantage is that you can most likely choose to live where you want rather than where you could afford to buy.
You can also move after your lease is up, if you choose, giving you more flexibility. Because your money isn’t tied up in property, you can invest your money elsewhere and diversify your investments which some may view as ‘less risky’.
If you were pouring your savings into owning your own home, your money is only in your house and that means your savings (i.e. your house value) can be affected by things outside of your control, like a downturn in the property market. If you don’t own property, you also won’t have additional expenses like rates, building insurance, repairs and maintenance which can add up to a costly to-do list.
The cons of renting? Well, you may not be able to have a pet (depending on what state you’re in) or decorate and renovate the home you live in because at the end of the day, it’s not yours. You also may be forced out of your home if the landlord chooses to end the tenancy early. There’s a bit more uncertainty when it comes to renting.
2) Question: Can I be approved for a home loan if I have a bad credit history?
Answer: Yes, it is possible.
There are loans available to people who want to apply for a home loan but don’t have the best credit history.
Usually, a bank like us may not consider you for a loan but it still would be worth exploring the option. However, if you do get a ‘no’, there are other specialist lenders and support services that could provide a loan or assist you on your way to a home loan.
We also recommend getting at least 20% of the value of the house as a deposit, that way you won’t need to be considered for Lenders Mortgage Insurance. Check out our home loans 101 or home loan glossary articles to learn more about what Lenders Mortgage Insurance is.
We would recommend you improve your financial habits and save up for a more sizable deposit for applying for a home loan if you have a bad credit history. This way, you may have an opportunity to improve your credit rating.
Read our article here on how to get out of debt.
3) Question: Can you take out a home loan for more than the purchase price?
Answer: Yes and no.
A bank will not give you a mortgage for more than the value of the home. However, if the person applying has some additional form of security, such as owning another property outright or cash they may be able to use this as additional security to borrow against.
You may also be able to use a guarantor. A guarantor can be a third party, such as a family member, that may offer up property or cash to provide as a collateral security.
But if you have no additional assets to produce as security, you are unlikely to secure a home loan for more than the purchase price .
4) Question: What do I need to take out a home loan?
Answer: Documents – lots of them!
Yes, you need a few different documents when you apply for house but thankfully, they should dbe straightforward to pull together.
Some of these documents may differ depending on your buying situation and if you are an existing customer of Bendigo Bank or not.
When you apply for a home loan, you may need:
- Proof of identification
This can include your passport, driver’s licence and/or Medicare card.
- Proof of income and employment
You will need to provide evidence of your income. You may need to provide your pay slips and/or copies of your tax returns and evidence of any other income ie dividends, commission.
- Proof of savings
This shows how much you have saved for a deposit. It could be a statement from your savings account.
- Your expenses
Your expenses will demonstrate that you can afford your mortgage. You will need to show how much you spend on bills and other household and personal costs.
- Proof of any debts
If you have debts such as credit card debt, you must be transparent with your lender about this. You will need to provide details of any loans or commitments, and you may be required to provide statements to confirm your repayment history.
- Details of your assets
This is things like your car, other property, shares and savings.
5) Question: When buying a home, what are the closing costs?
Answer: It depends.
When you buy a house, you’re not just paying for the house itself. You may be surprised to find out there’s a few other ‘hidden’ costs too.
Here’s a list of the other costs you may incur when ready to buy your house and transfer it into your name:
- Lender’s Mortgage Insurance
If you purchase a house and your loan amount is more than 80% of the value of the house, you may need to pay Lender’s Mortgage Insurance (LMI).
LMI is a type of insurance that protects a lender (the Bank) against the risk of the customer defaulting and not repaying their loan. LMI is usually 2% of the value of a property. If you purchased a $500,000 townhouse, it would be $10,000 . However, it does depend on things like if you’re a first home buyer or not.
- Stamp duty
If you’re a first home buyer, you may not need to pay stamp duty or you may be eligible for a Stamp duty discount. If you’re not a first home buyer, then you’re likely to have to pay stamp duty. Stamp duty is a tax calculated on the value of the property you are purchasing – you can work out what your stamp duty fees will be in a calculator here.
- Conveyancing and legal fee
Technically, you can complete your own legal documents, but getting a solicitor or conveyancer to complete your legal paperwork for you could make the process easier.
- Building and pest inspection
This is one of those things that should be on your to do list. The building and pest inspector will do a thorough examination of your house and determine its condition and look for any damage. This means you may avoid a costly repair well after you’ve moved into your new home.
- Registration (or transfer) fee
This one is minor – compared to the rest – but that doesn’t mean it should be overlooked. There’s two types of registration fee – one for the property purchase and one for your mortgage documents. The first one is often called a ‘Transfer of Land document’. This is usually done by your conveyancer or solicitor. The second registration fee is organised by the state or territory government and registers the physical property as the security on a home loan (Source: Finder.com.au).
- Loan application fee
Some lenders may change a fee for applying for a loan. This is something you can compare between lenders and have a discussion around negotiating the fee.