6 Tips For First Time Buyers To Secure The Best Home Loan Rates

Published 17 March 2021 by Team :Different

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So, you’re about to embark on the fabled path of property investing.

Before you start sussing out the perfect property there’s one very important thing you need to take care of, it’s property finance

But, finding a mortgage broker to give you a loan for the investment property is easier said than done. Getting it right the first time is no easy feat. But even if you’re stuck with a sub-par mortgage, there are still actions you can take.

You need to research and understand the best investment loan rates for you. Lucky for you we have done the heavy lifting for you on this one.

Let's dive in!

Even getting an interest rate that’s 0.5% lower than the next lender can mean you’ll be saving tens of thousands in repayments over a 30-year loan.

Steps you can take to get the best home loan interest rates

Here’s 5 things you should do before you buy your investment property to ensure you’re getting the best investment loan rates.

  1. Use home-loan comparison tools to find the best mortgage deals
  2. If you already have a property mortgage, you can get it refinanced for a better deal
  3. Get pre-approved for a home loan
  4. Find a property you can truly afford
  5. Boost your likelihood of getting the home loan you want
  6. Increasing your borrowing capacity

 We’ll explain each step in detail.

1.  Which bank has the best home loan rates?

It’s the question on the lips of every property investor.

Mortgage rates are constantly in flux, so it can be hard to know if you’ve covered enough ground of research when you settle for a mortgage broker.

We recommend using uno’s Home Loans’ comparison where you can see which home loan provider has great rates right now, whether it’s a fixed-rate mortgage, variable mortgage rate, investment property loan, and so on.

Banks With The Best Home Loan Rates 2021

Bank

Interest Rate

Monthly Repayment

MeBank

:86 400

CitiBank

HSBC

Westpac

NAB

1.89% p.a.

1.84% p.a.

1.89% p.a.

1.97% p.a.

1.99% p.a.

1.99% p.a.

$1,456

$1,446

$1,456

$1,472

$1,476

$1,476

2. If you already have a home loan

You can refinance your home loan for a better rate if you’ve been paying it down for some time and you find a better deal.

We suggest using uno Home Loans’ loanScore™ tool to analyse your current mortgage and check if you could be saving money.

It takes about 2 minutes, and you’ll get a rating with calculated potential savings to set you up for a better property mortgage if there is one.

3. How to get pre-approved for a home loan

Finding the perfect property only to get your mortgage application declined is a heartbreak we don’t want you to experience.

Mortgage calculators are a good start for figuring how much your repayments will be, and roughly how much you can borrow. But there will still be some uncertainties since it doesn’t take into account your specific financial situation.

Getting pre-approved is a great way to mitigate this uncertainty. 

You’ll know precisely how much your lender is willing to loan you, which will tell you exactly what your budget is when you’re scouting for properties.

Sound like an idea? Then get your paperwork ready. Because it’s pretty standard that you’ll need to provide evidence of your savings, income and outstanding debt.

But be wary. There are plenty of informal, online ways to get pre-approved, but they can come with far less certainty. If you truly want peace of mind, eventually you’ll have to sit down with your lender so you can both formally sign off. 

And it’s important to note if there’s been: 

  • Negative changes to your financial situation
  • Negative valuation of the property
  • Unfavourable change in government regulation...

...Then your lender can still choose not to give you the mortgage, even after a pre-approval. 

We recommend checking out Home Loan Experts for a free pre-approval quote.

4. Find a property you can truly afford

Now that you know just how much the bank is prepared to loan you, you can go ahead and begin your search for the perfect investment property. 

It’s important to keep in mind, however, that on sites like Domain and Realestate.com.au, many agents will quote a price that’s towards the lower range of the estimated value of the property.

So, when you’re looking at properties it’s good practice to add on 10% (the allowable range in NSW) and ask yourself if you can still afford it.

5. Increasing your likelihood of getting the home loan

So, you’ve gotten pre-approved and found the property you want. Time to get formally approved! 

Your lender will want to take another look at your financial situation. Just to make sure you haven’t lost your job since they last looked. Also to check that everything else is on the up and up:  

  • Do you have genuine savings?  (5-10% of the purchase price)
  • Good credit history?
  • Good credit score? (622-725 is considered “good”)
  • Ample income and gainful employment?

Some additional hoops you’ll have to jump through as a property investor is making sure your property meets the certain criteria:

  • Is the living area greater than 50m2?
  • Is a conventional house, unit or plot of land?
  • Is it in a high demand area?

Pending all this, and some other minor particulars, your lender should finally, officially, loan you the money you’ve been waiting for!

6. Increasing your borrowing capacity

If you’re going to get the most out of your investment, purchasing a property that ticks the boxes of high capital growth and good rental yield is a must.

At the same time, such a piece of real estate is going to cost you. So, the question is: How do you get the bank to lend you as much as possible?

Well, here are a few things you can do to give you that edge when it comes to serviceability:

  • Pay down existing debt
  • Reduce your credit card limit or get rid of credit cards altogether
  • Apply for a joint loan (with your spouse)
  • Opt for a positive cash flow
  • Get a 5-year fixed rate loan

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But, how do you get a home loan if you’re self-employed?

Tricky part of being a property investor is that if you’re doing it full-time, you’re considered self-employed in the eyes of a mortgage broker.

One of the peskiest drawbacks for self-employed, full-time property managers and investors is trying to get an investment loan.

Luckily though, real estate is considered a very safe investment, and banks are keen to give you the home loan you need to make the purchase.

Still, there’s measures you should take. Here are some tips for how to get a home loan when you’re self-employed.

1. Keep a paper trail

Lenders are going to want to see what your business is earning, so make sure you have your Business Activity Statements, tax returns and bank statements all up to date and ready to hand over.

2. Choose a generous lender

Many banks will look at the last 2 years of your business and go off the worst year to gauge your borrowing power. So, if your latest financial year has been a good one you might want to find a bank that will only look at your previous years’ income (they are out there).

The catch is that these low doc lenders will typically ask for bigger deposits of around 20-40%. 

3. Consider holding off on deductions

This isn’t easy to suggest, but banks have a habit of looking at the deductions you’ve claimed on your taxable income and saying that’s evidence of you earning less.

If you’re planning on getting a loan in the near future and you’re scraping together all ways you can increase your likelihood of getting the home loan, holding off on deductions is something you can do.

4. Reduce the limit on your credit card

Through a bank’s eyes, when they look at your credit card limit, they see it as though you owe that much. So, it can be a really bright idea to decrease your limit so they’ll view you far more favourably.

Or, even better, get rid of your credit cards altogether!

5. Keep money in the bank

Pretty self-explanatory, but if you can show that you have savings, and a good history of saving, at that, you’ll be in good stead for getting that investment loan.

If you’re getting started on your property portfolio and you’re short for time we’d recommend getting a property manager to take care of your rental property for you. It’s worth it if it means keeping your daytime job.

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Disclaimer: The views, information, or opinions expressed in this blog post are for general information purposes only and should not be relied upon. We have not taken into account specific situations, facts or circumstances, and no part of this blog post constitutes personal financial, legal, or tax advice to you. You should seek tax advice from your accountant, specific to your situation.

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