Mastering the Home Loan Process: Strategies for Success

Ever dreamt of owning a home but felt overwhelmed by the convoluted home loan process? Let Oscar and Zeke, be your beacon in this financial fog. We shed light on the quintessential steps, starting with the key to unlocking your dream home - a stellar credit score. Discover practical tips on maintaining good financial habits like setting up automatic payments, paying more than the minimum amount, using credit savvy tools to keep an eye on your credit score, and intelligently managing credit cards. We even suggest a visit to a mortgage broker for a soft credit check to explore your borrowing options.

Down the rabbit hole of home loans, we discuss the practical nuts and bolts involved in securing a loan. Learn why scrimping and saving for a 10% down payment could be the difference between landing your dream home or losing it. We share insights into additional fees like stamp duty and lender's mortgage insurance that often catch unwary borrowers off guard. With us at your side, you’ll learn the ropes of navigating these financial waters and understand why getting pre-approved for a loan could be your golden ticket in today's cut-throat housing market. We round off this insightful session with a detailed breakdown of the documents needed to get your loan moving and the time it may take to gather them. Your dream home is just a podcast away. Tune in!

For any inquiries or to connect with Oscar, Zeke, or their company, Asset Road, listeners can visit the following links:

• Finance Bible Podcast Instagram
• Asset Road Instagram
• Asset Road Website

The advice shared on The Finance Bible is general in nature and does not consider your individual circumstances. The Finance Bible exists purely for educational / entertainment purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs.

Transcript

Zeke Guenthroth: 0:09

Hey guys, welcome back to another episode of Finance Bible Podcast.

Oscar Don: 0:13

We are your hosts, as always, Oscar and Zeke. Please note that nothing in this podcast should ever be considered as a personal financial advice.

Zeke Guenthroth: 0:21

If personal financial advice is what you are after, then please reach out and we can connect you with the correct professionals to ensure you get the job done properly.

Oscar Don: 0:28

Enjoy the show.

Zeke Guenthroth: 0:29

Let's get into it Today. We thought we'd just talk about tips on getting a home loan. Oscar, do you want to jump straight in with the first point?

Oscar Don: 0:42

Very, very good topic, this one. We are doing it off a post that we put on our asset road Instagram on the 25th of May, if anyone does want to join in. But the first point is and extremely vital is, working on your credit score when it comes to getting money or being in a lend of money. The banks are going to give you any, any DOSH if you're proven to not be able to pay back or miss repayments for your car loans, phone bills, all different types of bills. One here to help you with your credit score is perhaps setting up automatic payments or reminders to avoid missing any payments and consider paying more than the minimum required amount to demonstrate to the bank that you are responsible in terms of your financial behavior.

Zeke Guenthroth: 1:33

Another thing to mention on that is obviously taking care of all your pay later methods. So you zip, pay you after pay. Even PayPal now has one where they pull credit checks. Commonwealth has one. So many different pay buy now, pay later things going on and they really add up. Additionally, there's apps out there or websites out there, like credit savvy, where you can jump on there, get a free report every month. You can monitor what's going on.

Zeke Guenthroth: 1:57

But this is going to going to lead into another point that we're going to bring up, which is visiting a mortgage broker. So, visiting a mortgage broker, they can pull a credit check for you and it's like a soft inquiry, so it doesn't actually impact your credit rating, whereas if you go to a bank and you go right, I want to get a loan, I want to do this, I want to do that, they'll put your credit, put the inquiry on there and then it's it. If you then go to another one because they're not going to give you the money or they're going to charge your high interest rate or whatever it is, and you're shopping around, you go to the other bank, they pull a credit inquiry. Bang, now you've got two within two days. Go to another one because you want to test out what interest rate you can get somewhere else. Bang three in three days, so Within a three day like period, if you're trying to borrow 500 grand.

Oscar Don: 2:42

You've now requested $1.5 million in three days, yeah, so you go on, for the sake of things, trying to make inquiries to suss out the best deal, because it does affect your credit score. That kind of comes back to credit cards as well. Credit cards are a big factor in this, especially in the young guy let's say 18 to 30 year olds age group, because you realize you're eligible for a credit card and you might like all the points that comes with the sign on bonus. And then all of a sudden you're at your 5k and get you got no savings, pay it back and you're paying the interest and If you miss your repayments obviously that's going to impact your credit score as well. So be smart With that. I know we're kind of getting on track of credit cards which will get off in a moment. Credit cards, be careful. Figure out before you actually apply for one if you can make better payments. But that will impact your credit score if you don't pay those back on time to make sure you've got a good credit score.

Zeke Guenthroth: 3:38

We did a podcast separately on credit scores and how to manage them and different things that affect them, so I'd recommend listening to that, because this podcast is specifically Focused on actually going for a home learn and different tips. Each tip will have their own individual things that need to be talked about, so we'll move on for now. Another thing to talk about we already kind of mentioned it was a broker space Me personally and Oscar. You can confirm or deny this, but I would not go to a bank directly if I was getting a line.

Oscar Don: 4:08

Had confirmed, take it for that strongly actually.

Zeke Guenthroth: 4:12

Well, there you go. I've seen too many issues with it, like not getting the money or getting money at a high interest rate or willy-nilly pulling credit checks or Having limited products and a whole bunch of different things. If you get a mortgage broker, they can sit down with you, they can do the soft credit check, as I said. They can figure out what you can borrow, what you can't borrow, roughly, what's safe and what's not safe, tell you your limits. You can play with safety parameters in your head and Figure out their payments and everything at different institutions, different financial lenders, and then you can make up your mind from there.

Oscar Don: 4:44

I think the best thing about a mortgage broker is let's say you go to a direct bank for a loan. Let's just say Westpac, for example. This is we haven't experienced Westpac. This is just purely an example. They will only offer you what Westpac's best product is at the time, so it might be a relatively high interest rate compared to other competitors. But if you go to a mortgage broker they will compare around 40 different lenders for example the Westpac CBA by the Liberty mortgage market, all these different lenders and and filter through and figure out who is the cheapest, who offers the best rate, who constructs a loan the best way possible and Literally process of elimination and give you the best broker. And they will walk you through and actually show you the comparisons between the others. There's no bias, could all broke in working all best interest. There's no banks done doing different commissions etc. But they will give you the best lender in the whole, whole pod.

Zeke Guenthroth: 5:47

Yeah, they're legally obliged to act in your best interest. They have to give you a written reason of why they're recommending that specific Lender and what the benefits are the risk reward and compare them to other lenders, as we just said. Moving on to the next point, don throw one out there.

Oscar Don: 6:03

I would say Saving for a down payment is probably probably definitely the most important one, because if you don't have the money, I can't really get a loan, can you?

Zeke Guenthroth: 6:16

That's valid.

Oscar Don: 6:17

So lenders typically require down payment. As you imagine, the percentage of the total high price generally fluctuates between 10 and 20 percent. Some are different pending on the lender. But let's say In my mind I'd want to say that at least 10 10 percent of the purchase price before I'd actually legitimately think about getting a loan.

Zeke Guenthroth: 6:41

Yeah, you do need to save up money. I mean, if you've already got a property and there's a bunch of different things going on, you've got equity, you're at a certain LVR like loan to value ratio and all these different things, you can kind of do it differently. Or if you're a first home buyer and you're putting down 5% and you've got that whole entitlement going on, then it can vary. But very basically, if you're going for a loan, you've got 10% of the deposit. What you've also got to then take into account is you've got fees. You've got to have LMI at a 10%, which is lender's mortgage insurance, basically an insurance. You can Google it.

Oscar Don: 7:14

We've done an episode on that, don't even Google it. It's on the asset rating surround page there it is there you go. What is our loan?

Zeke Guenthroth: 7:22

We'll actually drop the link for that specific post, Make it easy. And then you've also got to take into consideration like stamp duty, For example. That can come in at like 15 grand, 20 grand, 30 grand. So if you're saving up for a property and you've got a 10% deposit, that could very quickly turn into 5% or 4% due to stamp duty, depending on the actual price of the property obviously.

Oscar Don: 7:44

And that leads back to having a professional team in your corner, Because if you went and did this yourself and you had no experience of what would stamp duty is or the other the costs associated with purchasing property, you might be in for a root shock. So if you have a professional who can at least let you know this is the rough expenses which will come through, this is how much you'll need in terms of cash. It will put you in a lot better place.

Zeke Guenthroth: 8:11

Yeah, good conveyance or a good solicitor can also help with that and help with the calculations behind it all. But your broker should do it and all the bank. If you're going bank direct against my advice, this isn't financial advice. I would say the next point for me and I think in today's market this is probably more important than ever getting pre-approved for a loan. In the current market, if you don't have a pre-approval, it's very difficult for you to actually get a sales contract on a property, because a lot of people have pre-approvals as an agent. If you're selling a property, you've got some of the pre-approval. You have some without one. I'm pretty sure you know which one they're going to pick, regardless of the offer, because they want the stability, they want less work, they want to get the job done. So if you get a pre-approval, firstly you know exactly what you can do, you're pre -approved, you're ready to go. It makes it quicker for you, quicker for the seller, everyone's happy. It's a common sense get a pre-approval.

Oscar Don: 9:04

Yeah, in terms of pre-approval, it doesn't mean that you've fully locked in before you want to be, just literally shows All right, well, if I did go for a loan, I could service this amount. So I can actually service it, which is great, like you said, in terms of there's three buyers the one with the pre-approval. It demonstrates to the seller that you are at an actual, serious buy, so they're not going to take the other two. They're going to take your offer because you're ready to go, which is a big no-brainer. And brokers as well don't charge for this. So if you're worse scared in the past of getting a pre-approval because you're spending money on a mortgage broker, they don't charge anything for it. So it's perfectly fine to do. It's probably a really vital step.

Zeke Guenthroth: 9:51

I will say most mortgage brokers won't charge. I've come across a few cowboys in my time. I won't put a little few on there Now?

Oscar Don: 9:58

next step, let's say you've got the deposit, you've got everything sorted. You've got the professional team you called in, you've got the pre-approval, they've accepted your offer in the house, and then it's time working with your mortgage broker to get all your documents in place to actually get the loan moving and get it sorted. So we're talking pay slips, relevant IDs if you've got other loans, statements if you've got a high-end loan, if you have a high-end loan, statements.

Zeke Guenthroth: 10:28

There's a variety of different documents, as your mortgage broker would tell you, but that will actually get the whole game underway, yeah if you've got another property, you need probably a rates notice to show you the ownership breakdown and have your name on the title.

Zeke Guenthroth: 10:41

Tax returns for individuals if you own a business and you're self-employed, you need tax returns for the business. If it's within a self-managed fund, then you need returns for the self-managed fund. If you're self-employed and the self-managed fund, then you need your tax returns the business tax returns, the SMSF tax returns and it can get pretty messy. So having a broker to help with that is quite good and you need an accountant, clearly, because that's a lot of work. Yeah, the quicker you get your documents together and making sure you've got all of that ready, it just makes the whole process a lot easier. If you don't have any of that, I've worked with clients that it literally took about four months for them to get even half the documents together. So, yeah, get all of that together and then when you're actually ready to move on a property, you can get it quicker, which also comes back to getting a pre-approval. If you've got all your docs, you get a pre-approval, you're ready to go.

Oscar Don: 11:32

I love it. I love it Going back to the purchasing of house with savings. If you have a home at the moment and there's a fair bit of equity in the home and you don't have too much of savings, you can utilize the equity in that home for a down payment or not a problem. So if you want to invest in property and you have some equity in your home, good news is you can.

Zeke Guenthroth: 11:54

Another point to mention this isn't included in the actual post but fixed versus variable, you've got to figure out, once you've done all the other things, are you going to take a fixed loan or a variable loan? Again, your broker should help with this. If you're going bank direct, then you're going bank direct. But with a fixed versus variable, you've got to figure out what suits your financial situation better. I can't really say too much about this on a podcast because obviously it's not financial advice, although my personal opinion my personal opinion again pending a lot of different circumstances like COVID came and this has happened, that's happened, gfc blah, blah, whatever it is If you're going fixed, then you're basically betting against the bank.

Zeke Guenthroth: 12:43

So the bank have chosen a fixed rate. They know they're going to make money on that based on what they're predicting to happen in the future. Otherwise they wouldn't offer it. So if you're choosing a fixed loan, then you're going well. Actually, I think that you've got this wrong and the rate is going to go up from here. So fixed would be a better option than the long-term variable. If you go to a casino, houseways wins, right.

Oscar Don: 13:07

Well it depends who you are.

Zeke Guenthroth: 13:10

That's true. There is mitigating.

Oscar Don: 13:12

It's a good gamble, but you might fall away with the win. But no, you're on the wrong side. You should bet on the notes. 99% of the time, that's the house, doesn't it?

Zeke Guenthroth: 13:22

I've had some lucky strikes in my time on casino wars. I've got a pretty good win-loss ratio on that. But with the lending scenario you can come out on top if you get fixed. For example, the people who fixed it 1% or 2% during COVID happy days you really outsmarted the bank there. Did we know what was going to happen? Absolutely not. So again throwing money on black and hoping for the best.

Zeke Guenthroth: 13:49

One final tip before you let you go, which isn't really related to actually getting the loan or anything. We've done an episode on it for the rainy day fund. If I'm going out and getting a home loan, I'm making sure I've got a rainy day fund, a safety barrier, to make sure that if anything does go wrong, I can meet those repayments and look after it. If I'm injured for six months, if I get sick for three months, if I'm off work for whatever reason, if I lose my job, if something happens to one of my children or a family member and I'm stuck in a really bad situation, I want that rainy day fund. Speaking of which, it's quite drizzly here today and I'm a big fan.

Zeke Guenthroth: 14:27

Yeah, all right. Well, let's end it here. Call it a day, we'll see you all soon. Ciao, Guys. As always, if you've liked the podcast, please give us a review. Click on that five-star wagon, share it around with your mates and just give it the big odd Abs. Department of health.