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Home loans - what to ask before you buy

If you're thinking of getting a loan to buy a home, but you're not sure that questions to ask before you buy, these questions will help you compare home loan features, and the answers you get will help you choose the home loan that's right for you.

Click on a question below for more information.

Mortgage brokers: Should I use a mortgage broker to find a home loan?
Qualifying: Will I qualify for a home loan?
Amount: How much can I borrow to buy a home?
Deposit: How much deposit do I need to get a home loan?
Repayment: How much will I have to pay back for the home loan?
Fixed or variable: Should I get a fixed interest rate or a variable interest rate?
Pre-approval: Can I get a loan approved before I find the home I want?
Approval: How long will it take to have the home loan approved?
Valuation: Do I have to provide a valuation of the property to get a home loan?
Other costs: What other costs will I have to pay up front to get a home loan?
Grants: Will I get a first home buyer's grant to buy the home?
Security: What am I providing as security for the home loan?
Making payments: How should I make the home loan repayments?
Early pay out: Can I pay out my home loan early?
Extra payments: Can I make payments more often than scheduled?
Re-draw: Can I get money back after I've paid it off the home loan?
Offset account: Can I get an offset account attached to my home loan?
Cancellation: What happens if I change my mind about the loan?
Settlement: What happens at 'settlement'?

1. Should I use a mortgage broker to find a home loan?

A reputable mortgage broker should be able to find a home loan to suit your circumstances. However, do some background research first so that you have some idea about what is available, and about the broker you are considering. Going directly to a financial institution, especially if you have a good history with them, may offer a better result.

2. Can I get a home loan?

This will be the first question you'll ask. You have to:

be aged over 18
supply information about what money you have coming in, what you have to pay out,
give details of what assets you have (car, cash etc.),
list what debts you have (credit card, personal loan etc.),
provide details of your employment.

To back up all this, you'll need proof, for example:

birth certificate
driver's licence
bank statements
payslips
tax statement

Get all this information together before you do anything. It may take some time to do that, but you'll get an answer about your loan application faster if you have all the required documents handy.

3. How much can I borrow to buy a home?

This will probably be the second question you'll ask. It will depend on your financial circumstances (job, savings, credit history etc.) and the term of the loan (that is, whether you want to pay it back over a shorter or longer time).

4. How much deposit do I need to get a home loan?

This will vary with the financial institution. It is usually based on a percentage of either the valuation or the purchase price of the home.

5. How much will I have to pay back for the home loan?

By the time you have paid off the entire home loan, you will have paid the original price of the home plus the interest on the loan. Remember if you get a variable interest rate loan, and the interest rate goes up, you'll have to make bigger repayments. Factor this into your calculations.

Find out up front exactly what you're committing yourself to. Lots of financial institutions offer home loan calculators on their web sites, and it's definitely worth doing the sums before you sign on the dotted line.

6. Should I get a fixed interest rate or a variable interest rate?

You'll have to find out what is best for your circumstances. Some lenders will even offer a hybrid home loan - part variable, part fixed.

A fixed interest rate means your repayments stay constant for the fixed term of the loan - say three or five years, then it may go up or down, depending on the market. It allows you to budget knowing the rate if fixed for a specific time, but evenutally you will have to renegotiate or pay out the loan.
Variable interest rate means your repayments go up or down whenever the lender changes their lending rates. If you decide on a variable rate, ask the lender if they offer any discounted rate products.

7. Can I get a loan approved before I find the home I want?

Ask your lender if this can be done...at the very least you can find out how much you can spend before you go shopping. Having a loan that is pre-approved can be useful when negotiating a purchase or if you are buying at an auction.

8. How long will it take to have the home loan approved?

Ask the lender how long it is likely to take. This might be important if you have a home already in mind.

9. Do I have to provide a valuation of the property to get a home loan?

Find out if this is required (it usually is) and who can do the valuation and how much it will cost.

10. What other costs will I have to pay up front to get a home loan?

Find out what else you'll have to pay so that you can compare various home loans on offer. For example:

Solicitor or conveyancing fees
Stamp duty
Application fees
Property valuation
Building inspection
Pest inspection
Mortgage insurance
Building insurance

You should also take into account other basic costs, such as:

connection to gas and electricity
strata fees
council rates
telephone connection

11. Will I get a first home buyer's grant and/or stamp duty waiver to buy the home?

If you're a first home buyer, find out if you'll qualify for the grant, and if so, for how much - the grant is usually larger for a new home. The lender will usually arrange the paperwork for this. These grants are usually only available for a limited time, so find out what the deal is before you start looking for houses.

Under some circumstances (e.g. buying a property of a certain value off the plan) a first home buyer may also be entitled to a waivering of stamp duty.

12. What am I providing as security for the home loan?

Generally the security is a first mortgage on the home you are about to purchase, however if you already own property you may be able to use some of the equity in your existing property to help buy the new one.

Make sure you know exactly what terms you are agreeing to when you offer security for the loan.

Find out if the lender requires a direct debit, or if you can pay at a branch or by internet/phone banking, or directly from your employer (if your employer will do so), and if there are any costs involved in any of these methods.

13. How should I make the home loan repayments?

14. Can I pay out my home loan early?

Find out what costs are associated with early pay out.

There will also be a fee to pay at the end of the loan (even if it's not paid out early). Find out what it is.

15. Can I make payments more often than scheduled?

Find out if it's okay to make payments more frequently than scheduled to reduce the interest you will utimately be paying. Check to see if there are any special restrictions about paying extra on top of your scheduled amount, such as not being able to do so via phone banking, or having to pay a fee to do so.

16. Can I access the money I've paid off the home loan?

Find out if the loan has a re-draw facility, so that you can take back some of the money you've paid off your loan - could be handy for unexpected expenses.
Find out if there are any costs associated with this.

17. Can I get an offset account attached to my home loan?

Find out if this would suit you. An offset account means you put your earnings and any cash savings you have into the mortgage, thus reducing the interest charged for the time the money sits in that account. Then you take the money out as you need it, effectively increasing your interest bill once you've retrieved the cash. There is likely to be a set up fee for this type of account. Find if there are any other restrictions if you think it would suit you.

18. What happens if I change my mind about the loan?

Find this out early. You are likely to incur a cancellation fee once the home loan has been approved.

19. What happens at 'settlement'?

Find out how long it will be until 'settlement'. Most settlements occur around four to six weeks from the official approval of the home loan. This is when the home becomes yours, you get the keys, the money is paid to the seller, and you suddenly have what is probably the biggest debt you've ever had! :)