9 things to consider before applying for a home loan in 2024

1. Your borrowing power
Bankwest Executive Manager Specialist Lending Stephen Harper says it’s good to do the groundwork first and understand your current financial situation and how much you can afford to borrow.

This depends on several factors including your income, expenses, current debts, and credit score.

Engaging with a mortgage broker, a lender, or using online calculators can give you an idea of your borrowing capacity.

“Every homeowner’s circumstances are different, and what works best for one person might not be the best option for someone else,” he says.

2. Your credit score
Lenders assess your creditworthiness based on your credit score.

In 2024, with the heightened focus on digital finance and micro-lending.

In Australia, you can find out your credit score by requesting a free copy of your credit report from one of the major credit reporting agencies and, by law, you're entitled to one free report from each agency every year.

It’s a good idea to regularly review your credit report and rectify any discrepancies you find. SavvyShield from Credit Savvy protects your credit score from anyone trying to impersonate your for their own financial gain, you can find out more on how to stay safe and secure here.

3. Interest rates
It’s important to do your research on potential rate changes and factor these in when calculating your monthly repayment ability.

“For those considering fixing, Bankwest’s Fixed Home Loan provides the certainty of knowing what your interest rate and repayments will be,” Stephen says.

“Homeowners can choose their fixed rate period from one to five years, which can help people manage their budget and have the comfort they will be making the same repayments throughout.”

But Stephen advises before going into a fixed rate loan, it’s worth considering the implications if you decide to break the loan during the fixed period, as break fees might apply, and there can be other limitations, such as the amount of additional repayments you’re permitted to make.

4. Additional costs
The price tag of your dream home isn’t the only expense. Remember to factor in inspection fees, stamp duty, conveyancing charges, and potential mortgage insurance.

Stephen says these costs can add up quickly and impact the amount you need to borrow.

“It’s important to know about the upfront costs that come with buying a home, because factoring in the costs outside the deposit - such as government taxes - can help avoid unpleasant surprises,” he says.

“Depending on your circumstances and where you live, you might be eligible for stamp duty exemptions or concessions when you buy your first home.”

5. Loan features
Not all home loans are created equal.

Do you need an offset account? Would you like the ability to make extra repayments without penalty? Ensure the loan you're considering aligns with your needs and offers the flexibility you desire.

6. Existing equity
For those looking to upgrade, the equity in your property can be a significant boon.

If your property has risen in value, you might be able to borrow against it to cover any renovations or improvements.

“It might be worthwhile reaching out to your lender or broker, who can help navigate the process and give you an idea of what your finances might look like after.”

7. Your loan-to-value ratio (LVR)
The LVR is the amount you wish to borrow compared to the property’s value.

A lower LVR often results in more favourable interest rates and may even help you avoid lender’s mortgage insurance.

Stephen says maximising your deposit is the best way to achieve a lower LVR.

“Customers will likely need a 20% deposit to avoid paying lenders’ mortgage insurance when applying for a home loan.”

8. Your investment goals
Depending on whether your goal is to buy a home or an investment property, your loan options and rates available to you could be impacted because investor loans typically attract higher interest rates than owner-occupier loans.

“Those looking to invest in a rental property could find financial advantages in doing so but there are a few factors to consider, such as what areas have high renter demand, and the different interest rates available for investors compared to owner-occupiers” Stephen says

9. Your existing mortgage
If you already have a mortgage, it’s a good time to review the home loan.

Sometimes, shifting your loan can lead to substantial savings and allow for the incorporation of features better suited to your current needs.

Engaging with a mortgage broker or lender can provide clarity and tailor-made advice for your specific situation. They can navigate the vast landscape of loan options, ensuring you get a deal that's right for you.

*This article has been brought to you by Bankwest a division of Commonwealth Bank of Australia (Bankwest) ABN 48 123 123 124 AFSL. Australian credit licence 234945. For more information on how Bankwest can support you on your Home Buying journey go to bankwest.com.au/homeloans.

(Source: Realestate.com.au)