Get your home loan pre-approval sorted before you start inspecting homes in Holsworthy. It gives you a conditional indication of how much a lender may lend, so you can set a budget. It is not a guarantee of finance, and it usually lapses after a set period.
We help buyers through the home buying process. This guide covers the decisions that matter most, in the order you will face them.
What Is Home Loan Pre-Approval and Why Does It Come First?
Home loan pre-approval is a lender's conditional indication of how much it is willing to lend you, based on your income, debts and savings. It is not a final offer, and the lender will still assess the property you choose.
Getting it first sets your price range and shows agents you are serious. The main trade-off is that it is conditional. Your circumstances, the lender's policy or the property valuation can change the final result. Applying to several lenders at once can also leave multiple credit enquiries on your file, so it pays to have a broker choose where to apply.
Your borrowing capacity depends on more than your salary. Credit card limits, personal loans and living expenses all reduce what lenders will offer.
How Much Deposit Do You Need and What Is LVR?
LVR, or loan to value ratio, is your loan amount divided by the property's value, shown as a percentage. A smaller deposit means a higher LVR, and lenders usually treat higher LVR loans as riskier.
If your deposit is under 20 per cent of the purchase price, you may have to pay Lenders Mortgage Insurance (LMI). LMI protects the lender, not you, and it adds to your costs, though it can sometimes be added to the loan. Whether it is worth paying depends on how long you would otherwise take to save the larger deposit. If you are buying your first place, our first home buyers page explains the support that may be available.
NSW charges stamp duty, which it calls transfer duty, on property purchases. First home buyer relief may apply depending on the price and your circumstances, so check Revenue NSW before you commit to a budget.
Fixed Rate, Variable Rate or Split Loan: Which Suits Your Situation?
A variable rate moves with the lender's pricing, a fixed rate stays the same for a set period, and a split loan divides your balance between the two. The right choice depends on how much certainty you need versus how much flexibility you want.
The trade-offs are real. Variable loans usually allow extra repayments and offset accounts, but your repayments can rise. Fixed loans give predictable repayments, but extra repayments are often capped and breaking the loan early can trigger costs. A split loan gives you some of each, though it is more to manage.
The RBA cash rate is currently 4.85% p.a. Lender rates move with many factors, so the rate you are offered will depend on your deposit size and lender. Our fixed rate expiry page covers what to do when a fixed term ends.
Example: How Repayments Compare on a Loan at an Illustrative 6.75%
On a $700,000 loan over 30 years at an illustrative 6.75% p.a., principal and interest repayments come to about $4,540 a month. Interest only repayments on the same loan would be about $3,940 a month.
Consider a Holsworthy buyer comparing the two. The interest only option looks cheaper by about $600 a month. But after an interest only period of five years, the loan must be repaid over the remaining 25 years. At the same illustrative 6.75% p.a., principal and interest repayments would then be about $4,835 a month, which is higher than the original $4,540.
The buyer decides on principal and interest, which pays down the loan from day one. The trade-off is a higher monthly outgoing at the start. Interest only can suit investors or people with a short-term plan. Many owner-occupiers choose principal and interest repayments so they reduce the balance from the start. Use a repayment calculator to test your own numbers.
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What Is a Mortgage Offset Account and Is It Worth Having?
An offset account is a transaction account linked to your loan. The balance in it is subtracted from your loan balance when interest is calculated, so you pay interest on less.
If you owe $700,000 and keep $20,000 in the linked offset, interest is charged on $680,000. Your money stays accessible, which suits people building a savings buffer. The cost is that loans with offset accounts can carry higher rates or annual fees, so the benefit depends on how much you keep in there. A small balance may not outweigh the fee.
How Do You Compare Home Loan Options Beyond the Interest Rate?
To compare home loan options properly, look at the rate, the fees, the features and the lender's policy on your situation together. The lowest advertised rate is not always the loan that suits you.
A broker can compare home loan options from the lenders on their panel. That might mean choosing a lender that treats your income type more favourably, or one with a portable loan feature if you may move again. Ask about any discount offered on the rate and for how long it applies. Some discounts are tied to packages with annual fees, so weigh the saving against that cost.
Example: A Holsworthy Couple Gets Ready to Buy
Consider a couple renting near Holsworthy who want to buy a home. One works full time and the other part time, and they have a car loan and two credit cards.
A broker reviews their position and suggests they cancel one card and reduce the limit on the other before applying. They then apply for pre-approval with a lender whose policy suits their income mix. With the lower debts, the amount they can borrow is higher than their first online estimate suggested. They search with a clear ceiling, make an offer within it and settle on their chosen home.
This is an illustration only. Results depend on each person's finances and lender policy. You can read more about Holsworthy home loans or speak with a mortgage broker in Holsworthy about your own position.
What Happens After Pre-Approval Until Settlement?
After pre-approval, you find a property, sign the contract, submit your full home loan application and the lender values the property before giving formal approval. Settlement follows once the legal work is done and funds are exchanged.
Keep your finances steady during this time. Taking on new debt, changing jobs or making large unusual purchases can affect the final approval. Your broker stays in touch with the lender throughout so any questions are answered quickly.
Call one of our team or book an appointment at a time that works for you through our book appointment page, and we will map out your path to home ownership.
Frequently Asked Questions
What is home loan pre-approval?
It is a lender's conditional indication of how much you may be able to borrow. It is not a final offer or a guarantee of finance, as the lender will still assess the property and your circumstances.
Do I need to pay Lenders Mortgage Insurance?
If your deposit is under 20 per cent of the purchase price, you may have to pay LMI. It protects the lender and adds to your costs.
What is the difference between interest only and principal and interest repayments?
Interest only repayments cover just the interest for a set period, so they are lower at first. Principal and interest repayments reduce the loan balance as well, and the later repayments rise after an interest only period because the remaining term is shorter.
How does a mortgage offset account work?
The balance in a linked offset account is subtracted from your loan balance when interest is calculated. This can reduce interest, but the loan may carry a higher rate or fee.
