Residential Property Finance – Your Complete Guide

Buying a home or investment property is often one of the largest investment decisions and financial commitments you will make in your life.

24 September 2020

Home and Property Loan Guidelines for Homeowners and Investors

Buying a home or investment property is often one of the largest investment decisions and financial commitments you will make in your life.

In this article, we cover the things you need to know in relation to property finance.

Refinancing with vie

What Will It Cost?

There are a number of costs you will incur when purchasing a residential property. These quickly add up to a significant amount of money and need to be taken into consideration when determining how much you would like to spend.

Here is a break down of what to expect:

Stamp Duty

Stamp duty is effectively a state government tax which is based on the purchase price of a property. As this is set by state governments, the stamp duty payable varies from state to state, as does how it is calculated and the rebates and concessions available to certain types of purchases, such as first home buyers & pensioners.

The purpose the property is being purchased for can also affect the stamp duty payable, ie: as home to live in (a principal place of residence) or to rent out (an investment).

To obtain accurate information about the stamp duty payable in your state, please visit the following websites:

Registration of Transfer Fee

This is a fee that is set by and payable to the state government, for transferring the ownership of a property from the seller (vendor) to the person buying it (purchaser). Transfer fees vary from state to state, ranging from as little as $207 in Tasmania, right up to $782 in Queensland for an owner-occupied property with a purchase price of $350,000.

Registration of Mortgage Fee

This is another fee that is set by and payable to the state government for registering a mortgage against a property. Mortgage registration fees also vary from state, ranging from $115 in Victoria, up to $181 in Queensland.

Realestate.com.au has a handy calculator that can be used for the purpose of obtaining an indicative estimate of the applicable government charges associated with purchasing a property in your state.

Your local Vie Financial finance broker will also be happy to provide you with a personalised funding summary detailing all the applicable taxes, fees and charges for exactly what you would like to do.

Legal & Conveyancing Costs

One of the primary roles of a solicitor/conveyancer is to prepare all of the legal documents required to facilitate the purchase of the property and to protect your interests. They will provide you with advice regarding the terms and conditions of the contract of sale and point out any specific items you should be aware of.

If there are planning restrictions, easements or caveats on the property, or something is out of the ordinary, your conveyancer or solicitor will also highlight this to you. It is always a good idea to have your solicitor or conveyancer read over the contract of sale before you sign it, for presentation to the vendor.

Although they will not be involved directly in arranging the finance for your property, your solicitor/conveyancer will act on your behalf to arrange settlement with your chosen lender, the vendor’s solicitor, and their bank.

They will also make sure you only pay costs from the date of settlement, which is the day the property legally becomes yours. This will ensure you do not pay for things like council and water rates that were incurred by the seller prior to settlement – more on this in a minute.

Effectively, your solicitor/conveyancer is your legal representative who brings all the parties involved in the sale transaction together to facilitate your purchase: your finance provider, the seller, the seller’s finance provider, the seller’s solicitor/conveyancer and the land titles office.

Rates & Strata Re-Imbursement

Many buyers do not realise that the amount they are going to contribute towards their property purchase will be “adjusted” by their conveyancer to allow for expenses that have been paid by the vendor (seller) in advance, at the date of settlement.

Say the vendor pays the council rates for a six (6) month period but sells and vacates the property after just one (1) month. As the buyer, you will be required to reimburse the vendor for the additional five (5) months of council rates they have paid. These costs will often be referred to by your solicitor or conveyancer as “adjustment costs”. The most common “adjustment” items that you should expect to pay at settlement are water rates, strata/body corporate levies and council rates.

To work out exactly how much you may need to adjust your contribution by, each item is given a “daily rate” and calculated accordingly.

Your Vie Financial mortgage broker will make an allowance for “adjustment costs” when calculating the funds required to purchase the property you wish to buy. This will ensure you are not caught out and do not have to try and find additional funds to cover the applicable adjustment costs at settlement.

Lenders Mortgage Insurance

Lender’s mortgage insurance (LMI) is an insurance policy that protects your lender from financial loss in the event you do not make your home loan repayments, and they are forced to sell your property for less than what you owe them.

Lenders mortgage insurance is applied directly to your home loan. While LMI is not an upfront fee that you must cover at settlement it is added to your home loan, so you still have to pay for it, plus interest!

Lenders mortgage insurance is payable when you borrow over 80% of what the property you are purchasing is valued at. As a general rule, you will need to contribute 24% of the properties purchase price using unborrowed funds if you want to avoid paying lenders mortgage insurance: 20% as a deposit, and roughly 4% to cover all of the costs we covered earlier.

The cost of LMI varies depending on a number of variables, however, the main influencer is the percentage of the properties value you wish to borrow, which is known as the loan value ratio (LVR).

The higher your loan value ratio, the more expensive your lender’s mortgage insurance will be. For a rough guide on what your lender’s mortgage insurance may cost, have a look at Genworths LMI estimator.

The cost of lenders mortgage insurance varies between lenders and scenarios. Your Vie Financial mortgage broker will be able to provide you with an accurate LMI quote for your individual circumstance.

Account Conduct

The truth is your account statements provide a huge amount of information about you and can ultimately determine whether or not your loan will be approved. Many lenders require three (3) to six (6) months statements for your bank account, credit card and loan facilities as part of their application process, which enables them to thoroughly review the conduct of your existing accounts.

Reviewing the statements not only enables them to verify your income and expenditure but also see what you are like at managing your money and paying your bills. Are there late payment, the account is overdrawn, or dishonour fees being charged to your account? Is your credit card over its limit? Has it been paid on time over the past six (6) months? These are the account conduct issues lenders look for and take into consideration when assessing home loan applications.

Obtaining a Pre-Approval

A pre-approval means that a lender has agreed, in principle, to lend you the money to fund the purchase of a property up to a certain amount. It allows you to ascertain your purchase price, so you can narrow your search, negotiate with certainty, and bid with confidence if you’re going to buy at auction.

You’re under no obligation to take out the loan, and the lender has no obligation to lend you the amount you are pre-approved for, however, it shows sellers you’re serious about buying and you’re confident you can afford the property.