Helpful Resources

LVR, also known as ‘Loan to Value Ratio’ is the ratio between the amount you borrow from a lender and the value of the property. For example, if you purchase a house for $400,000 and have a $100,000 deposit, you need to borrow $300,000. Therefore, your LVR is calculated as $300,000 (loan amount) divided by $400,000 (value of the house) which equates to a 75% LVR.

LVR including LMI:
Borrowing above 80% LVR means you will have to pay Lenders Mortgage Insurance (LMI). This affects your LVR because it means you have to borrow more money to cover the cost of LMI. For example, if you buy a house for $600,000 and you have a deposit of $60,000. This would mean you have to borrow $540,000 and your LVR would be 90% before LMI, however, you have to pay for LMI which would be around $9,500 depending on the lender for a $600,000 house. This LMI gets added onto the loan amount, making the new loan amount $549,500. Now, the new LVR is 91.58%.

Lenders Mortgage Insurance (LMI) is a ‘risk fee’ that banks charge for an LVR greater than 80%. This fee can be avoided if you can pay a 20% deposit. LMI is charged because it is risky for the banks to lend more than 80% of the purchase price given that if the homeowner defaults on their mortgage, the banks could end up out of pocket. This fee gets greater the more money you borrow and the higher your LVR ratio is.

The first step of the home buying process is to establish your objectives; do you want to build/buy an existing property? Do you want to buy an investment property? What is your budget? Where do you want to purchase? etc. The next step is to assess your options; you can do this by talking to a mortgage broker. A mortgage broker will give you an idea on how much you can borrow for a mortgage, how much your deposit will be, interest rates, repayments and other important information. Applying for a loan through a mortgage broker can help simplify the home buying process and is a great guide to buying a home. After you know what your options are, you can then step into the market and start looking for the home that’s perfect for you!

Buying your first home can be a daunting process and speaking with a mortgage broker can really help clear up this process and simplify everything. See question 3 for details on the home buying process. Being a first home buyer, you could be eligible for a few government benefits:

Another benefit is the First Home Owner Grant (FHOG). This grant is available for buying or building a new home and is worth $10,000 for non-regional Victoria and $20,000 for regional Victoria. More information and eligibility can be found in question 5.

One of these is the First Home Loan Deposit Scheme (FHLDS). This scheme allows you to purchase a home for as little as a 5% deposit and you do not have to pay lenders mortgage insurance (LMI). More details on this scheme and eligibility can be found in question 6.

The last grant available is the HomeBuilder grant. This is available if you are building your own home or renovating your current home and the grant is worth $25,000. Note you do not need to be a first home buyer for this grant. More information on the HomeBuilder grant can be found in question 7.

Depending on your situation you could be eligible for all of these grants.

The First Home Owners Grant (FHOG) is worth $20,000 for regional Victoria and $10,000 for non-regional Victoria. You are eligible for FHOG if you:

• Are purchasing or constructing a new home (cannot be previously occupied)
• Are a first home buyer
• Will occupy the home as your principal place of residence for at least 12 months
• Are aged 18 or older
• At least one applicant is an Australian citizen or permanent resident
• The price of the property cannot exceed $750,000

More information can be found here:
https://www.sro.vic.gov.au/fhogapply

The First Home Loan Deposit Scheme (FHLDS) lets you borrow up to 95% LVR without paying any LMI (see questions 1 and 2 for details on LVR and LMI). Eligibility for FHLDS applicants is as follows:

• Pass the income test:
  i.For singles, your taxable income cannot be greater than $125,000 for the previous financial year
  ii. For couples, your combined taxable income cannot be greater than $200,000 for the previous financial year
• All applicants must be first home buyers
• All applicants must be aged 18 or older
• All applicants must be Australian citizens
• You must have 5% of genuine savings (cannot receive a gift)
• Cannot have more than 20% of savings
• Will occupy the home as your principal place of residence for at least 12 months

More information can be found here:
https://www.nhfic.gov.au/what-we-do/fhlds/

The HomeBuilder grant is worth $25,000 for construction and off-the-plan applications, or for significant renovations to an existing house. You could be eligible for HomeBuilder if you:

• Pass the income test:
  i.For singles, your taxable income cannot be greater than $125,000 for the previous financial year
  ii.For couples, your combined taxable income cannot be greater than $200,000 for the previous financial year
• Have not received the HomeBuilder grant previously
• Are aged 18 or older
• Are an Australian citizen
• Will occupy the home as your principal place of residence for at least 6 months immediately after construction/renovation/settlement.
• HomeBuilder eligibility contract must be signed before 31st of December 2020 and construction must commence within 6 months of signing this contract.

More information can be found here:
https://treasury.gov.au/coronavirus/homebuilder

There are many costs associated when buying a house. The amount you should budget for will vary greatly depending on the purchase price of the property and the loan amount you require. Here are some fees you could be up for when purchasing your home:

There are government fees:

• Stamp duty (further outlined in question 9)
• Transfer of land fee; this amount will vary depending on the purchase price
• Mortgage registration; this fee is $119 for all application

There are also lenders fees:

• LMI; applicable if your LVR is greater than 80%. This goes onto the loan amount.
• Application fee; this amount will vary depending on the lender
• Ongoing fees; these fees will also vary depending on lenders, there also may be no ongoing fees at all

Miscellaneous fees:

• Inspection fees (building inspections, pest inspections etc.)
• Home and contents insurance (this is compulsory if you have a mortgage)
• Utility connection fees
• Legal/ conveyancing fees
• Moving fees

Stamp duty is a government transfer fee that is payable upfront on the purchase of a home. First home buyers in Victoria do not have to pay stamp duty for up to a $600,000 purchase. Purchases between $600,000 and $750,000 receive a discounted rate. However, if you are a first home buyer purchasing an investment property, you will have to pay stamp duty. You have to pay stamp duty upfront, therefore, your loan cannot cover this cost. If paying for stamp duty means you no longer have a 20% deposit, you will also have to pay LMI. Here is a table showing how much stamp duty will cost you over a range of purchase prices:

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Home buying is a daunting process, especially if it is your first time. Being familiar with mortgages is important as it will help you decide what you want from your mortgage. There are so many different types of products to consider, for example, do you want fixed, variable, split, offset, redraw, rate lock, and the list goes on. Seeking advice from a mortgage broker will help you find the best type of loan features for your situation. As everyone’s circumstances are different there is no ‘best’ feature/s to look out for, it really just depends on what you want and what financial situation you are in.

A pre-approval is when a lender has agreed to lend you a specific amount of money given your current circumstances. However, this is not a formal/unconditional approval. This pre-approval sets you a budget knowing what amount you can buy for. Once you are pre-approved, you can step into the market and find the perfect house for you. If you sign a contract of sale and have ‘subject to finance’ in your clause, the bank will then reassess your situation and hopefully, grant you full approval. A pre-approval will typically last 90 days before it will expire. It can be easily extended for another 90 days with some updated information so do not feel pressured to purchase with the 90-day period. A pre-approval does not guarantee you finance. Although, if your circumstances have not changed dramatically from the time of pre-approval to the time of purchase and the valuation of the property is fine then there is a very good chance you will be formally approved.

A pre-approval does appear on your credit record as an enquiry. Having one or two is fine, however, if you have several in a short amount of time and with many lenders, it may look bad on your credit record. It is advised that you only get pre-approval if you are serious about buying a house in the near future rather than speculating on it.

Some brokers may charge a fee for a pre-approval, however, Finance 4 Nurses do not charge any fees to get a pre-approval. We also do not charge for extensions for pre-approvals in the case you do not find a house you want to buy within the 90-day period.

Getting a pre-approval does not confine you to the lender whom you applied through. When you find a property that you want to purchase, your situation will be reviewed and you can change the lender if you wish, as long as you can service with that lender. At Finance 4 Nurses we will always review your situation at the time of purchase to identify any better options for you.

A conditional approval is an approval that is subject to meeting the conditional requirements. For example, a lender may approve you for a loan of $500,000 on the condition that you cancel your credit card. So, to have the finance approved, you must cancel your credit card.

Some lenders will let you borrow up to 95% of the purchase price so this will require a 5% deposit plus any other upfront fees that you have to pay such as stamp duty and statutory costs. However, if you borrow at 95% of the purchase price you will have to pay a high risk fee known as LMI. The higher your LVR ratio, the more LMI you will pay. However, there is a government scheme called the First Home Loan Deposit Scheme that allows you to borrow 95% of the purchase price without paying LMI. This is for first home owners only. If you wish to avoid paying LMI you can only borrow up to 80% of the purchase price. See questions 1 and 2 for more details on LVR and LMI.

A valuation is a detailed report of the market value of the property. This is not what the property would sell for, as it does not take into consideration people’s emotions and demand for the property. A valuation is used to get an idea of what your property is worth. It is calculated by looking at recent comparable sales in the area to form the foundation of the valuation. However, it will also take into account the size, condition, location, contents and style. Valuations are required when obtaining finance for the property as the banks need assurance that the value of the property outweighs the value of the loan to ensure they are covered in the event of a default.

How much you can borrow is known as your borrowing capacity. This amount will be different for every person depending on their financial situation. Borrowing capacity is a calculation that takes into account your income, debts, credit cards, living expenses and other factors given your financial situation. It will vary from lender to lender as they will all have different policies and procedures. You may get a figure such as $500,000 which means you can borrow $500,000 from a lender. This is not to be confused with your maximum purchase price as you could have a borrowing power of $500,000 but purchase a house for $600,000 depending on how much you have in savings. In this case you would need over $100,000 in savings to make up the difference between the loan amount ($500,000) and the purchase price ($600,000) and any fees such as stamp duty, statutory, conveyancing and inspection costs. To summarise, borrowing capacity simply means how much you can borrow from a lender given your current financial situation.

Nurses can definitely buy their own home. They just need to meet both the criteria of getting a mortgage. These two criteria are being able to borrow the required amount from a lender (borrowing capacity), and being able to afford a deposit. If you meet both of these criteria, you can buy your own home. The same goes for every profession.

As nurses are within the essential services sector, most lenders are more generous with their income. This means that they will be able to borrow more money from lenders which increases the price that they could buy a house for. Lenders also have special offers from time to time, for example, there is a bank offering an LMI waiver for 85% LVR loan for nurses only. Whereas, the rest of the market will have to pay LMI for any LVR greater than 80%. Nurses, along with any other health professionals, have access to Health Professionals Bank (HPB) which is one of the best banks in terms of borrowing power. HPB when compared with other lenders will usually let you borrow a greater amount of money depending on your financial situation which again, will increase the price that you can buy a potential house for. HPB also has very competitive interest rates and products.

There is no generic ‘best bank’ for everyone as everybody’s situation is different. There are banks that will benefit certain people more than others for example, as discussed earlier, Health Professionals Bank (HPB), as the name suggests, is very generous on health workers income and is therefore suited to nurses. They also offer very competitive interest rates. However, this doesn’t mean every nurse should be going to HPB, as stated before everyone’s situation is different and some nurses may be more suited to another lender.

There are a few things that are important to know before bidding at an auction. The first is that there is no cooling off period, therefore if you are the successful bidder, there is no going back. Given this, all checks and inspections must be done in advance (property inspections, pest inspections, etc.). The deposit is usually payable immediately depending on the agent, however, you should assume that there is 10% that needs to be paid immediately. You should also make sure that your pre-approval hasn’t expired and that you are able to meet any conditions of your pre-approval. It is also recommended to get a desktop valuation of the property to gain a scope of what it is worth and how the banks will value it. It is important to receive legal information, such as the contract and section 32, from the agent and have it reviewed by a conveyancer or legal expert.

Before going into an auction you should know your limit, this will be determined by your pre-approval amount given that you probably won’t be able to borrow more than what you are pre-approved for. If the property hasn’t reached its reserve price it is important to be the highest bidder as you then get to negotiate one-on-one for a price, and often you can get the property for under the reserve price. You will know if the property is under reserve price if the auctioneer says it is ‘not yet on the market’ and if they say it is ‘on the market’ it is over reserve price. Visiting other auctions is a great way to get a sense of how things work in an environment with no pressure to bid.

Tips:
Bidding technique is also important, you need to show that you are confident. There are a few ways of displaying this:

• Speaking clearly and confidently.
• Not talking with a partner or taking a phone call. Talking displays that you are skeptical, which goes back to knowing your limit.
• Body language is also important, making eye contact with your partner is a give away that you are reaching your limit so try to avoid this.
• Keeping up with the increments. For example, if the bids are going up by $5000 each bid, don’t make a bid for $2000 as it shows you are reaching your limit.
  If you are not comfortable with the idea of bidding for yourself, you could have a family member do it for you. Alternatively, as discussed earlier, getting a buyers advocate to bid for you as they are very experienced and have bidding techniques that can help you win an auction.

A fixed-rate loan is a loan where the interest rate does not change over the fixed period. This also means that your repayments every month/ fortnight will remain the same. Typically, people fix their loans for up to 3 years, but you can have a longer term. However, the interest rates will not be as sharp. Variable interest rates change given the conditions of the market, meaning that your repayments will also change. Variable rates are generally more flexible, meaning they can have more features such as offset accounts and redraw, however, this depends on the product.

If you like the idea of the same repayments every month for budgeting purposes and you are worried about interest rates going up then fixing your interest rate could be a good idea. However, there are some downsides to this; you may not be able to make extra repayments, you may be up for a hefty break fee if you plan on making changes to your loan within the fixed term (selling, refinancing, using equity to renovate/buy a house). You may also not have access to an offset account or redraw with fixed products however this depends on the product. It is really down to personal preference and your situation. There is also the option of getting a split loan which hedges your risk by having a portion of your loan at a fixed-rate and the rest variable. You can talk to a mortgage broker for recommendations on the best loan structure for your situation.

A split loan is when you divide your loan into two parts. You can have a portion of the loan at a fixed-rate and the remaining balance at a variable rate. Splitting a loan is done because the fixed portion of the loan will be safeguarded against interest rate fluctuations, while the variable portion can take advantage of interest rates going down. However, if interest rates do rise, you will pay more on the variable portion, but the remaining fixed amount will not be affected. Essentially, a split loan takes advantage of interest rate cuts and also hedges your losses if interest rates rise.

An actual rate is the annual interest rate on a loan, whereas a comparison rate takes into consideration the actual rate plus any fees and charges on the loan. So, when comparing loans, the comparison rate is the best indicator. For example, a loan with an actual rate of 2.50% may have high fees every year giving it a comparison rate of 2.60%. On the contrary another loan with a rate of 2.55% that has lower fees could have a comparison rate of 2.58% meaning that the lower actual rate loan is costing you more than the higher actual rate loan. In summary, the best way to compare loans is by the comparison rate, however, you may also want to keep in mind the features of different loans for example, offset accounts and redraw facilities as comparison rates do not take this into account.

A rate lock is when a borrower locks their fixed interest rate in for a specific amount of time at the current interest rate. This will protect your rate if interest rates go up during the application process. For example, if you find a house that you want to buy and apply for a 2.5% fixed-rate home loan, this rate can change during the application process. So, if you are apprehensive that interest rates may rise before your loan application is approved, you can get a rate lock to confirm that 2.5% fixed-rate. If rates go up during that application period, you have saved interest in the future by locking in the lower rate. However, if rates go down during the application process, lenders will usually let you benefit from the lower rate. The only disadvantage of a rate lock is that there are usually high fees associated with them, therefore, rate locks should only be considered if you think interest rates will rise very soon. Seeking advice from a mortgage broker about rate locks is recommended.

An offset account is the same as a normal transactional/savings account except it is linked to your mortgage. The balance of this account reduces the amount of interest you pay on your mortgage. For example, if you have a mortgage of $500,000 and a balance of $50,000 in your offset account you will only pay interest on $450,000 of the mortgage. This means you will reduce the time it will take to pay off your loan as the offset account reduces the interest you have to pay over the duration of the mortgage.

You do not ‘need’ an offset account, however it is recommended if the benefits outweigh the costs. For example, if an offset account costs you $300 per year, but you are saving $350 per year in interest, the benefit is $50 per year. If you plan on having a fair bit of savings, then an offset account would be recommended as you will reduce the amount of interest paid. Whereas, if you don’t have much savings, you may be better off getting a loan without an offset account because fees could be lower (or no fees at all) and the interest rate could also be lower.

A redraw facility is a home loan feature that allows you to take out money from your loan. You are only allowed access to any extra repayments you have made over the term of the loan. This means that if you haven’t made any extra repayments, you will not be able to redraw any money out of your loan. An advantage of redraw is that it allows you access to funds in the case of an emergency or if you just want some extra cash. However, a redraw feature may charge fees for each redraw you make. There also may be a limit to how many redraws you can make per year and how much money you can take out in a single redraw.

See questions 30 and 31 for what an offset account and redraw is. Basically, an offset account provides more flexibility as there is easy access to funds as they are held in a standard savings account. However, offset accounts usually come with higher annual fees than loans with redraw. The redraw facility is much harder to access as you need to apply through the lender to redraw an amount and there will usually be a fee each time you redraw. Redraw and offsets are very similar concepts however, offset accounts are much more convenient.

Interest rates change all the time given the conditions of the market, likewise, does the lowest rate. Every lender will have different rates depending on the features of the mortgage (offset, redraw, fixed-rate etc.) In the current market interest rates on mortgages are very low, so now is a great time to borrow. The interest rate will also change depending on how much you borrow relative to the price of the house. For example, if you borrow $500K for a house valued at $600K you will get a better rate than someone borrowing $550K for a $600K house. This is due to the higher LVR ratio. The higher this ratio, the riskier it is for the banks therefore they will give you a higher interest rate. The features of the loan can also affect the interest rate. For example, a loan with an offset account will typically have a higher interest rate and associated costs than a loan with no offset.

When you do not have enough savings for a deposit, a parental guarantee could be an option. It is where the parents offer their house up as security for their child’s mortgage, this way, the child can borrow 100% of the purchase price. For example, if you wish to buy a $500,000 house but you only have $15 000 in savings, you do not have enough money for a deposit on that house. If your parents own their house (i.e. have no mortgage) they can offer their house up as security. This will enable the child to borrow the full $500,000 as there are 2 houses up for security to cover any losses the bank may have if the child defaults on the loan. The downside of this is that your parents could be liable for any losses that occur in the case of a default on the loan.

A gift is when a family member gives you money for a deposit on your mortgage. It is non-refundable and non-repayable and will require a signed letter from the person gifting the funds outlining these details and the amount. A gift is a great way of getting enough money for a deposit and/ or avoid paying Lenders Mortgage Insurance (LMI).

See questions 34 and 35 for what a parental guarantee and a gift is. A gift is suitable if your parents/family members have savings available to give, whereas a parental guarantee can be better if your parents don’t want to give you money. A parental guarantee is higher risk because if you default on your mortgage your parents become liable for any losses that are incurred by the bank.

Conveyancing is the process of legally transferring the ownership of land. It is a lengthy and fairly complicated process and a conveyancer is recommended to take care of this task for you to relieve some pressure during the stressful times of buying a home. It is not compulsory to get a conveyancer, however, doing the conveyancing process yourself is risky and if something goes wrong, you could lose your deposit.

A conveyancer undertakes the transfer of ownership process for you. They will act on your behalf by lodging legal documents, researching and settling the property for you. This will help the transition process run smoothly and can relieve some stress. The conveyancer will charge a fee however, but it means you don’t have to undertake this complex process by yourself. You also gain peace of mind as you eliminate the risk of losing your deposit due to the fact that you are covered by the conveyancer’s professional indemnity insurance.

A mortgage broker is a median between you and the banks. They will gauge an understanding of your objectives and situation to find the most suitable options for you. A mortgage broker has a considerable amount of resources available to them that allows them to find and present the most appropriate lenders for your situation. Once you confirm which lender you want to get a loan through, the mortgage broker will take care of the whole application process which simplifies everything for you.

Most mortgage brokers do not charge any fees to clients, the way that they get paid is through commission from the banks and what is called a trail. When a broker gets a loan approved, they will receive an upfront commission from the bank which is typically between 0.46% and 0.65% of the loan amount depending on the size of the loan and the lender. Additionally, they also get a trail, which is an ongoing commission. This amount typically ranges between 0.1% and 0.35% of every active loan they have settled per year. The commission rates do not vary very much between lenders which means you can be assured that a mortgage broker will act in your best interests as the commission to be gained is very minimal between lenders. In essence, mortgage brokers get paid from banks and not from clients.

A mortgage broker is great if you do not have a good understanding in finance and the home buying process. They will help you establish your objectives, give you the best options for your situation and handle the whole application process which will relieve some stress. Brokers usually do not cost anything for the client, see question 40 for how brokers are paid. A broker also has access to many resources which means they can get better rates and options on your mortgage, and will therefore save you money in the long run.

A buyers advocate is a specialist that will find and evaluate properties and will also negotiate a purchase price on your behalf. They will eliminate the time-consuming and stressful process of searching for properties by finding them for you, which gives you plenty of time to attend inspections on the houses that meet all of your criteria instead of spending countless hours looking for them. Buyers advocates also can access properties that are not publicly available yet, which could get you a better price as there is little to no competition on buying the house. They can also represent you at auctions which can be the most intimidating and stressful part, this will eliminate emotional attachment and more likely lead to a successful purchase as the buyers advocate is a professional at bidding. Every buyers advocate will charge different fees. Typically, they will either charge a flat fee, or a percentage of the purchase price.

It is very important to include a ‘subject to finance’ clause in your contract of sale. This means that you agree to purchase the property on the condition that your finance is approved. This ensures you do not lose your deposit in the case of your loan application being declined. Even if you have a pre-approval, you should never make an unconditional offer, as there is no guarantee your pre-approval will get formally approved.

Settlement is the date when the ownership of the property is legally transferred from the seller to the buyer. This day is typically 30 to 90 days from the day the contract of sale is signed. The date of settlement is the day you pay the balance of the purchase price to the seller. This is when the mortgage will be registered against the property and the lender will provide the funds to the seller. It is also the day you will pay stamp duty and your deposit (if you haven’t paid it already).

Credit accounts such as credit cards and ‘buy now pay later’ accounts do affect your ability to borrow money. It all depends on the limit of the account, the higher your credit limit, the more it will reduce your borrowing capacity. Even if you always pay off the accounts on time or do not even use them at all, they will affect your borrowing power. The way the banks see it, you could take out the full limit of the account today and not pay it back, then you will be charged interest on that amount, just like any loan, which is a liability.

You do not have to cancel/ reduce your credit card to get a loan, however, as explained in question 45, they do affect your borrowing capacity. Seeking advice from a mortgage broker is recommended as most of the time you can get approved for a loan without reducing or cancelling your credit card. However, everyone’s situation is different and sometimes, cancelling a credit card can be required to get that extra bit of borrowing power.

HECS does affect your ability to get a loan as you have to make repayments to pay it off. These repayments reduce the income which will be used to service a loan. Therefore, your borrowing capacity is reduced due to these repayments.

In correspondence with HECS, a personal loan will also affect your ability to get a mortgage. The repayments you make on your personal loan reduces your net income and consequently, your borrowing capacity.

The more frequently you make repayments, the more money you will save. However, it makes an extremely minute difference in the long run. Instead, it is recommended that you make your repayments consistent with your pay period. For example, if you are paid fortnightly, you would make your mortgage repayments fortnightly. If you have the option, it is also beneficial to make your repayments the day after you are paid so that you are more likely to have money in your account.

Finance 4 Nurses.
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