Getting a home loan – FAQs
The amount needed for a house deposit varies, but you’ll usually need at least 5% of the property’s value, which is an LVR (loan-to-value ratio) of 95%. To avoid paying Lenders Mortgage Insurance (LMI) however, most lenders will require you to provide a deposit of 20% of the property’s value.
A mortgage default (missing a repayment by 90 days) won’t bankrupt you but will require you to pay a late fee up to $200. This might seem relatively minor, but defaulting on your mortgage will also be recorded on your credit file, thus damaging your credit score.
Mortgage pre-approval, or conditional approval, usually lasts between three and six months with most traditional lenders. They don’t like to do pre-approvals for longer than this as people’s financial position can change, as can the property market.
You can’t get a home loan from an Australian bank for a property in another country; Australian banks and lenders only lend to people buying within Australia. However, some Australian banks will put you in touch with their international branches if they exist, or you can reach out to a foreign bank directly.
Types of home loans – FAQs
Guarantee home loans (sometimes called family guarantee or guarantor loans) involve parents using some of the equity in their current property to help their children pay for a home deposit.
Indigenous Australians are able to receive special assistance from Indigenous Business Australia (IBA) for home buying through the Indigenous Home Ownership Program. IBA offers home loan products with lower deposit requirements (starting at $3,000) and interest rates comparable to standard market rates.
Low doc home loans are low-documentation home loans: primarily used by people who have difficulty providing the wealth of documents usually needed to secure a home loan, such as payslips, tax returns, proof of employment etc. They are commonly used by self-employed people, freelancers or small business owners, who might not have these.
Equity release mortgages are also known as reverse mortgages. With an equity release mortgage, people over 55 can use the equity in their homes to borrow money, either as a lump sum, line of credit or regular income.
Home loans for foreign income earners are mainly for Aussie expats who earn a foreign currency and want to buy a property in Australia. A wide range of banks offer foreign income home loans in Australia, and they will accept a wide range of currencies – you’ll usually find a list of these on their website or by asking them.
Getting a home loan as a single parent is hard but not impossible. Lenders assess household income, so only having one income instead of two will make it harder to get approved for loan. They’ll also assume you’ll have a harder time meeting monthly loan repayments.
Getting a home loan as a student is tough because lenders are quite strict on their income requirements. They will assess your ability to meet monthly interest repayments on a home loan, and as a student, you’re unlikely to be earning anywhere near enough to get a home loan without some serious savings.
Relocation home loans, also known as bridging home loans, are loans for people who have bought a new home and are in the process of moving. this loan is used to ‘bridge’ the time between settlements, providing funds for you while you sell your current house using the equity in your home.
Rural home loans can be used for rural property designated as a ‘hobby farm’ – that’s farming for personal reasons and not commercial. Any land that returns more than $20,000 are considered income-producing and may not qualify. Lenders will allow you to borrow up to 95% of the land’s value (100% with a guarantor), but may not offer a loan for land greater than 10-15 hectares.
Self-employed people might find it a bit harder to get a home loan due to a lack of financial records (payslips, tax returns etc.). Self-employed people can choose to apply for a low-doc home loan, which require less-documentation but may come with a higher interest rate and stricter lending conditions.