When it comes to buying a property, getting the right finance in place is almost as essential as paying the right price.
We look at finance tips buyers should keep in mind when looking for the perfect property.
Meet David Westerman
Based in Altitude’s Toronto office, David Westerman spent 15 years in the finance sector before becoming a real estate agent in 2014. This gives him insights into just how important the right finance is when it comes to securing a good deal as a buyer.
David, what do you wish buyers knew when it comes to financing their property purchase?
Finding the perfect home is always a challenge but sometimes people overlook how important the finance part of buying a home can be also.
Finance is a really important piece of the puzzle. This doesn’t just mean talking to a lender to find out how much you can borrow so that you know your budget. It also includes getting the right type of loan for your particular circumstances. Plus, being finance-ready can save time, money and heartache – you don’t want to miss out on the perfect property!
Buyers and sellers often ask me what they think are property questions but in reality, are more about finance. Many people simply don’t realise there are different finance options that are potentially available to them, that could help them to make their next property move.
What’s the most common finance problem you see buyers facing?
The most common obstacle I see buyers facing is wanting to buy another property when they haven’t yet sold their existing one.
It’s all a bit chicken and egg. Do you buy first or sell first? There’s no set answer. Most often, buyers will need to sell their current property to buy another property. But what can they do if they see a property they like? By the time they get organised to sell their property the one they want to buy will also probably have sold.
If they don’t have the cash deposit or stamp duty saved, buyers think they can’t buy the new property they want without selling first. They feel stuck and often give up because it’s all too hard. If you meet the lender’s requirements, the answer could be a bridging loan – or relocation loan – but many buyers simply don’t know about this type of loan. If they do, they don’t understand how it could work for them.
A bridging loan, or bridging finance, is usually a short-term, interest-only loan that covers both properties for a set period of time. You’ll essentially have two mortgages for a short period of time and this obviously costs you money in interest but it can let you upsize, downsize or simply buy a new property when you’ve seen something you want to buy but haven’t sold yet.
Very few buyers realise this is available. They often assume they need to sell first, then rent and then wait for their ideal property to come along. Sometimes renting is a very good and sensible plan but sometimes it’s not. A bridging loan could really help you make your next move.
What else do buyers not know about?
Many buyers don’t know about deposit bonds. People assume they need to save the full deposit and don’t realise that if they already own property – their own home, or investment – and they have equity in it, they may be able to apply for a deposit bond instead.
It’s a guarantee by a lender or insurer that the buyer will pay the deposit – usually 10% – on a certain date. Like any type of loan, it’s not a one-size-fits-all and you need to read the fine print and be aware of the costs and terms and how it would suit your particular circumstances.
We also find buyers who are self-employed also mistakenly think they will have trouble getting finance. Certainly, lenders can be more conservative in assessing loans if you’re self-employed and ask for additional documents like a couple of years of tax returns. This can mean the process takes longer but it doesn’t mean you won’t get a loan.
A good mortgage broker would be able to give potential buyer-specific advice about which lender may be best for them and explain all the loans.
So you recommend buyers speak to a mortgage broker?
Absolutely. There’s not much to lose by consulting a mortgage broker or shopping around for finance. Even if you’re just considering moving and haven’t got any fixed plans it can be the best place to begin in terms of getting organised or planning for the future. It’s about educating yourself. It’s a bit like chatting to your local real estate agent to see what’s happening in the local market.
There are plenty of brokers and lenders these days, offering a range of different products to suit all buyers.
Mortgage brokers don’t charge unless they do the business for you and even then they tend to charge the lender, not the client. So there’s very little to lose and a lot to gain from doing your research early. You should choose a broker who has qualifications and experience, comes well recommended by a friend or family and who has access to a range of lenders and products.
Just make sure you ask how they’re paid so you can be confident they help you into the loan that suits you best, not just the one that pays them the most.
If you don’t want to use a broker you should do some research of your own and compare loan products from several lenders. With interest rates at record lows borrowing is actually cheap right now, but there’s more than just the interest rate to consider. For example, different home loans have different features that can work to your advantage or may save you money, like an offset account or redraw facility. Should you choose interest-only repayments or principal and interest?
Always remember that every time you apply for credit – including for a home loan – it goes on your credit rating. And that, in turn, can affect future applications for credit. Again, an experienced broker can really cut out the stress and help you find the right lender and home loan.
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