So Really – What’s The Best Way to Fund Your Property Purchase? Here’s What You Need To Know
Finding the right property at the right price is certainly the prime consideration when it comes to successful property purchasing – but getting the right loan at the right rate with the right features for you – is also important.
And these days, clients don’t care which lender/bank they borrow from. Logo and brand don’t really mean much when one lender charges tens of thousands extra just because they are a major institution.
With hundreds of products available and countless special deals on offer each month, it can be confusing for people to decide which is the right one for their particular circumstances. In this article, we look at all the things you need to consider before choosing a lender and a product.
How Much Will You Need?
In general, investment properties can be purchased with as little as 5 – 10% deposit, however at these levels you will attract Lenders Mortgage Insurance.
Having a deposit beyond 20% will remove the need for LMI (Lenders Mortgage Insurance). But if your available cash is a little short of the required deposit, some creative reshuffling of your equity could help you realise the difference.
Your ability to repay your investment loan will be supported by the rental income from the property you purchase. And all lenders will take this into consideration when you apply for the loan.
Most people purchase an investment property with the primary objective of making a residual passive income and, of course, a long term capital gain.
What Do You Need to Consider?
Here are some things you will need to consider when you are looking to buy an investment property:
- Loan application fees
- Valuation fees
- Building and pest inspections
- Stamp duty and other statutory government charges
- Conveyancing and legal fees
- Lenders Mortgage Insurance if you are borrowing more than 80% of the property value
There are a few other things which will generate good capital growth, give you consistent tenancy and help to give the lender more comfort when you approach them for a loan.
- The location of the property
- The demographics of the area (which indicates the suitability for the type of tenant you are targeting)
- How close your potential property is to public transport, schools, shops and cafes
- Is there any future development planned for the area which will impact the value of your investment property, both positively and negatively.
Remember, your investment property needs to be fit for purpose. Don’t fall into the trap of choosing a property just because it looks great. This is a business decision. Make sure you treat it this way and you will be rewarded with the income you are looking for.
Understanding the Different Home Loan Types
Not all home loans are created equal… and neither are the institutions who offer them. Every loan style is designed for a purpose.
The business aims of the lenders themselves are based on commercial decisions. So finding all the relevant information, discovering who is providing the right product for your type of property, then meeting their lending requirements is a task not easily done by a novice.
To say it’s confusing is an understatement. Even the jargon you need to learn is a big ask!
Here are some of the loan types to give you an informed start.
“Principal and interest” or “interest only” are the over-arching kinds of loans available. These are broken down into application specific areas.
- bridging loans
- debt consolidation loans
- fixed rate loans
- variable rate loans
- investment loans
- line of credit loans
- offset loans
All of these loans and others are applicable at times, however each institution has its own flavour of these which is what muddies the water for you, the purchaser. Each type of loan attracts a different interest rate and has features exclusive to the loan type and lender’s social values.
By now you’re probably starting to get a feel for the complexities of the finance world.
It’s like doing your tax. Even though you can do it yourself, your understanding of the current tax laws may have you compromising your claims or worse still… overstating them, risking fines and other unwanted drama. On the other hand, a tax accountant is well educated and versed on the current laws and allowances, giving you peace of mind and time to do more interesting things.
Just like using a tax accountant, we suggest that despite your brand loyalty to your bank, a mortgage broker is the most effective way to wade through all this information and help you make the best possible choice.
At Our Mortgage Options, we make it our business to be well versed on loan packages. We use 32 different lenders, all of whom have multiple variations of the above loans. We can show you what is available and help you to choose the loan most suitable to your circumstances and to achieve your investment goals.