You can’t start a search for properties to buy until you know your financial capacity.
How much can you borrow and how much can you afford to pay for property?
There’s little point in scouting around for properties in areas where typical houses cost $600,000 if your financial situation allows you to buy properties worth only half as much.
Fortunately there are plenty of options available on the Internet to help you to settle this question before you waste too much time in the market. These include the Mortgage & Finance Association of Australia.
This is the body that regulates mortgage brokers in Australia. Their website is full of useful information and online tools for people who haven’t applied for a loan before and are thinking of using a mortgage broker.
Even if you’re applying directly to a bank or other lender this website can provide the right questions you need to be asking when you have your interview with the lender.
It can help with issues such as:
- How much can I borrow?
- Can I use equity in my home for investment?
- What areas will banks lend or not lend in?
- What is the process involved in applying for a loan?
- What information will I be required to give to the lender?
- Why do they require the information they ask for?
- Why should I use a mortgage broker?
- How do I protect myself from fraud or scams?
- What is a credit reference report?
- What is Mortgage Insurance and why do I have to pay the premium?
How much can I borrow?
It’s not difficult to find on-line mortgage calculators that can give you an estimate of how much you can borrow to buy residential property.
These calculators will ask you to input basic information about your financial position, such as income and living expenses, to provide an idea of how much you can borrow.
The Aussie Home Loans website is one of many with mortgage calculators. Another can be found on the Mortgage Choice website.
Every lender will have its own methods of assessing borrowing capacity so please use these online tools as a guide only. A lender will examine your monthly expenses as well as your income when it assesses your borrowing capacity.
What is Mortgage Insurance and why do I have to pay for it?
Lenders Mortgage Insurance is required mainly when you borrow more than 80% of the value of the property. In some cases it is required for the whole loan, depending on which financial institution you are using. There are two main mortgage insurance companies in Australia (although some banks have their own internal insurance).
QBE LMI Australia
This tool will tell you whether or not the insurer will cover a property or not, and if so what the maximum Loan to Value Ratio (LVR) will be.
Servicing Capacity Calculator
This will give you an idea of the amount the insurer is willing to lend you based on your income and expenses. It does not take into account your assets or equity in your assets; it simply determines your borrowing capacity based on income.
The Security Location Guide identifies property locations by postcode for a range of LMI products for varying loan types and loan amounts.
The new online calculator will allow you to easily complete the serviceability calculation required when submitting LMI proposals to Genworth for consideration.
Need more advice?
As one of the longest running agencies covering Ryde and surrounding suburbs, the Snowden Park team know what to look out for when buying in our area. For expert advice on finding your new home, contact us today.Get in touch