Applying for a loan to purchase a house is a massive commitment, and it usually happens during a whirlwind time of looking at house listings, organising viewings, researching locations, and all the many different jobs that go along with purchasing a property.
Don’t wait until after your loan application is approved to think about the important questions – it will pay off in the long run if you come into the meeting with the bank or broker armed with a list, so you can ensure you have the best information possible to help you make your decision.
Here are 7 questions you should ask to make sure the loan you’re applying for will meet your needs.
1. What is the procedure involved?
Securing a loan happens in a few stages, so it’s important to know what lies ahead. You’ll need to know the sequence of events, from your first application all the way through to when you move in. Those steps will include legal and administrative tasks that will need to be completed by all the parties involved.
For most loans, there are three main stages.
Pre-approval is usually obtained instantly, but it isn’t binding on either parties. You can use pre-approval as an idea of whether you’d be approved, but you can’t use it to make an offer on a property.
Conditional approval generally takes 2-3 days, and comes after you submit your application form and supporting documentation. The lender will assess whether you can pay the loan. If everything is in order, your approval will now only be conditional on the property you choose.
Full approval normally takes 5-7 days more, and comes after your application and the property have been approved. If the property currently has tenants it might increase the amount of time you need, and a valuation will usually be undertaken before full approval is given. This stage allows you to make a formal offer on the property.
Knowing the stages of securing a loan helps you understand the timeframe and have the right information ready when you need it.
2. What other fees might I come across?
The obvious costs are the total value of your loan, the monthly repayments you’ll need to make, and the interest rate. However, there are some hidden costs that you might not hear about if you don’t ask the questions.
Some fees you might need to pay include:
If you know about all the costs, it makes it much easier to compare loans. A loan that looks inexpensive on the surface could end up being less competitive once those extra costs are factored in. Plus, the additional information helps you budget for the real cost of buying your home.
3. What rates are available?
The home loans you’re looking at have a number of different terms you’ll have to know in order to understand what you’re signing up for. For example, your loan could be interest only, low-doc, variable or fixed rate.
You could also potentially qualify for special rates, like the guarantor rate or one for first homebuyers. The rate you sign up for will affect both the monthly repayments and the total cost of your loan, so it’s something you want to understand well.
The lowest interest rates aren’t automatically the best. Your mortgage broker should offer you the comparison rates for various products, which take into account more than just simple interest, which makes it easier to compare the total cost.
4. How would refinancing work?
Refinancing can happen for a lot of reasons, so it’s a good idea to understand your options and how much it could potentially cost. If you find a better loan or need to have another look at your repayments, you’ll need to know how expensive it might be to change.
You might also want to ask about loan flexibility in unexpected circumstances – would it be possible to take a break from repayments if necessary? Could you potentially fix your payments at a later date? Are there any costs associated with refinancing or paying the loan off early?
You’ll find each loan has its own process and potentially different fees attached, so asking at the beginning of your loan leaves you a lot more prepared for the future.
5. Can I consolidate my debt?
If you have other debt when you apply for your home loan, it can be possible to consolidate it all into your mortgage payment. Most often the interest rate is lower than on other loans, and it can help to have all the payments in one sum. That being said, consolidating your debts could potentially cost you more in the long run.
It’s a good idea to bring up debt consolidation early on, to see if it’s an option and to ask questions about how it will work over the long term. A good broker will explain the benefits and drawbacks of consolidating your debt, and guide you through the process if you choose to go down that path.
6. What documents might I need?
Finding out about the necessary paperwork beforehand allows you to get the ball rolling and have documents ready to go when they’re needed. You will most likely need more than you think and different stages of the process will require different documents, so don’t forget to take notes. Remember to ask what papers you’ll need for the whole process, not just the loan application. While your application is being processed, use your time wisely and get ready for the next stage.
7. Why does this loan suit me?
Maybe the most important question of all is asking the broker why the loan is a good fit for you. There are many different loan products on the market for a very good reason. Buyers have variable needs and preferences that should be taken into consideration when choosing a loan. Your priority might be to pay the loan off quickly, have the lowest monthly payments, or pay the lowest interest over the life of the loan.
Ultimately a broker can make suggestions based on your needs and their knowledge and experience, but only you can make that final decision about which loan you will apply for. Asking lots of questions about the benefits, costs and risks of each loan helps you make the right choices that will help you to achieve your goals.
Your lender should find out information about you before they suggest a loan, so that they can offer one that suits your personal needs and situation. Don’t be afraid at any point to ask for clarification, for pros and cons, and for more information about how the terms apply to you. It’s a good idea to take notes, so you’re not leaving it up to your own personal recall when you leave the conversation.
Searching for a home loan is an exciting, stressful time, and the choice can be overwhelming. If you sit down with an expert, use their knowledge to your best advantage, and ask as many questions as you need to be sure that you’re getting the right loan for you.
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