According to Domain.com.au, first home-buyers find it tricky to understand the terminology used when buying a property. The study found 61% of first home buyers failed the basic property literacy test.
Not understanding the basic home loan terms could mean getting caught out with unforeseen costs. Buying a home is a huge investment – possibly the biggest in your lifetime, so it’s important to get clear on the language commonly used when you start your buying journey.
If you find LMI confusing, you’re not alone. Lots of people struggle to understand what this means, with many believing LMI covers the borrower, not the lender.
When you have a deposit of less than 20% of the property price, you need to pay LMI. The reason for this is a borrower with less than a 20% deposit is classed higher risk. This insurance acts as a ‘security’ to the lender and protects the lender if you default on your loan in the future.
You don’t have to pay LMI upfront, it is calculated as a percentage of your mortgage, and is usually added on to the home loan. It can add up to thousands of dollars, and will vary depending on a number of factors – including the value of the property and amount of the loan. LMI is one reason it usually makes sense to have a higher deposit of at least 20% of the cost of the property.
If you choose to purchase a property at auction, you will need to pay a deposit on the day if you’re successful with your bid. When you sign the contract, you have to pay the specified deposit amount. How this payment is made depends on terms and conditions provided by the agent selling the property – so make sure you understand all these intricacies before you get to the auction.
Something else to bear in mind, there isn’t a cooling off period with auction purchases. This means that you should complete any checks, such as building and pest inspections, before auction day.
It is also critical that you obtain finance approval from your lender before you bid at auction. You should ensure that your finance approval covers purchases made at auction.
66 per cent of first home buyers in the study were not clear what ‘conveyancing’ meant. In simple terms, conveyancing means the transfer of ownership of a property from a seller to a buyer. It is important to engage the services of a legal practitioner or conveyancer to look over the legal side of things for you. They can help with important tasks such as reviewing contracts and conducting searches on your property. They will also ensure that everything runs smoothly on settlement day.
In brief, an offset account is a bank account linked to your home loan, where the balance in your bank account is offset daily against your home loan balance. You’re only charged interest on the difference between the two accounts, meaning that if you have savings in your bank account, you’re charged less in interest on your home loan.
Still have questions about buying your first home? Visit your local branch or call us on 13 14 22 to have a chat, we’d love to help you understand the process and all the terminology related to home loans.