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LMI stands for Lenders Mortgage Insurance. Lenders Mortgage Insurance is a one-off insurance payment that protects the lender against the risk that you may default on your loan. LMI is usually only paid if your deposit is less than 20% of the value of the property.
Generally, if you pay a deposit equivalent to 20% of the loan or more, you do not need to pay LMI. There are some circumstances where you can pay a lower deposit and not pay LMI, including if you have a high income and a secure/stable job.
The deposit required really depends on your risk as perceived by the lender. Borrowers considered low risk can have a 10% deposit, whereas high risk borrowers usually need 20%.
In some Australian states, you can make an offer on a property which is subject to loan approval. In Queensland, it is common for people to sign a contract subject to 14 days finance approval, meaning that from the day you sign the contract you have 14 days to get your finance approved and then you will become unconditional on your contract. Becoming unconditional on the contract means you cannot terminate the contract for any reason and you must proceed with the sale.
There is no right or wrong answer as to how long your finance terms should be. People opt for up to 30 days in some cases, as long as you can negotiate this with the vendor or real estate agent.
Finance terms can be used as an effective negotiation tool. Having a shorter finance term (or waiving your finance all together) can allow you to get a better deal on the price of the property compared to a longer finance period.
Depending on which Australian state you are purchasing your property in, varied settlement terms are the norm. Ultimately, though, it is up to the person selling the property to accept your settlement terms. Typically, in Queensland settlement terms are between 30-45 days from the day you sign the contract. However, you could potentially set them up to 12 months if the vendor will accept it.
A certified building and pest report is completed by a qualified builder who looks at the property you are considering purchasing. They look for any structural issues, pests (such as termites or white ants) and any other problems with the building. Typically, these are only completed on stand alone home or townhouses, not units. This is because any defects are reported to the strata and body corporate in their minutes which your solicitor should request. The building and pest inspection will identify any repairs that are required on the property. The advantage with getting this report is it can give you ammunition to negotiate the price on the property, but equally rule out any properties that may have serious defects.
In Queensland, you can pay as little as $1,000 when you sign a contract to secure the property. This is subject to the finance and settlement terms. Upon becoming unconditional, the vendor will usually want a more sizable deposit. Sometimes they will ask for 5% but this amount is ultimately up to you. In most cases, we see deposits ranging between $10,000 to $25,000 and the agents find this acceptable.
The time it takes to get your loan approved varies and depends on a few different factors. This might include:
Generally speaking, banks will require 5-8 business days to approve a loan from start to finish. If you don't have a pre-approval before signing a contract, your finance terms should be a minimum of 14 days. If you do have a pre-approval in place, you can opt for as little as 4-5 days for finance to get everything in order and obtain your formal approval.
This really depends on what the economy and market are doing. If you believe the interest rate is going to fall, then you should stick with a variable rate so that your repayments will be lower when the rates fall. On the other hand, if you believe the interest rate will rise, then you should fix your interest rate so that when rates rise, you are paying the lower rate. Interest rates tend to fluctuate a fair bit and it’s almost impossible to tell where they will go.
For more information on this, see our blog post “Should you lock in your mortgage interest rate?”
Nothing! When you use a broker, you actually aren’t personally paying them anything. Brokers are paid by the bank. Your broker should always tell you how much commission they are earning. If they don’t, you should ask them.
When you go to a bank, they are only offering you one product - theirs. When you go to a broker, they are looking at loans from a wide variety of banks, meaning they can do your research for you and find the best possible loan terms to suit your personal situation.
As a general rule, you should never borrow more than 6 times your income. However, your borrowing capacity can only be assessed on a case by case basis. It depends on a variety of factors, such as your income, your credit history, your savings, and other things. It will also vary from bank to bank. Get in touch with us to find out how much you can borrow.
Here are some of the things that can change your borrowing capacity:
There are a number of other factors that influence your borrowing capacity, so chat to a broker to determine your best course of action.