Tag: mortgage

Are you buying your first home? | Part 2

Do you need a Mortgage Adviser?

2 Now that you have an idea about what you can afford to pay as mortgage repayments, the next step is to decide how much your actual buying power is – how much are you realistically able to borrow from the banks to buy the house. It is way easier to get the services of a mortgage adviser during this phase to do the hard work.  

If you are doing it yourself, here’s how it is done.

Things you need: your income, expenditure, assets and liabilities.

In simple terms, how much money comes in (e.g. salary, rental income, profits), how much of it do you spend (e.g. bill payments, groceries), what items of value do you possess (e.g. savings, gold, vehicles) and how much do you owe (e.g. loans, credit cards, hire purchases). You also need an amount of cash (Savings) that is readily available as your deposit. This will be the down payment for the property.

Once these are figured out, you need to go to lending institutes to find out how much you are eligible to borrow. Institutes can be banks (highly recommended) or other financial entities that are legally allowed to lend. They evaluate the values you put down plus some other numbers such as your credit rating and decide whether you can borrow money at all, and if so, how much. 

Why doing it yourself is hard:

  • Having to face rejections (multiple times)
  • Hefty amount of communications and long waiting periods to get results
  • Time consuming
  • Emotionally draining

You may not get approved for finance right away (you are lucky if you do!). Even if you are successful in your first attempt, you may need to fish around to get a good deal. This process is not only time consuming but also emotionally draining at times especially if you get rejected by multiple banks. You also have to fill multiple applications that have different formats from one another. That is just the beginning! You also need to carry out regular communications with each party and wait a long period of time to hear back. With a day job and other personal responsibilities at hand, having to going through this repeatedly is not fun (trust me on this!). You will end up exhausted at this stage even before the good part begins.

Finding a competent mortgage adviser makes your life so much easier at this stage. The first good thing about a mortgage adviser is, their services are free to you. They get paid by the banks once a mortgage is finalised.

Secondly, they would be experienced enough to tell you how much your buying power is and what you could do to improve if needed, even before going to the bank.

Thirdly, with their experience, they know which banks have reserves to lend money at present. Which cuts down the urge to go to every bank possible.

Finally, they will do the leg work for you. They already have established relationships with banks which allow them to communicate much easier and quicker. They will be able to get you pre-approved for a mortgage which would be a plus point when making offers. With a mortgage adviser, you’ll get results much easier, especially when your offer is accepted and are ready to apply for the mortgage. At this stage, they can offer you advice on loan types and loan terms to consider.  

Having said that, there are times when you feel it is better to have first-hand control of the process because you become reliant on a third party (adviser) for communications with the banks. Especially, when the mortgage applications are processing, banks take at least 5 working days to process. Then they communicate the results to the adviser, and you hear it from them. If there is anything to be negotiated, you need to go through the mortgage adviser to the bank which seems like an eternity to get results. Such waiting periods in between can agitate you if you are someone that is used to take control and steer things.

My recommendation is, do use a mortgage adviser, even if this is the case.

However, find one that is extremely competent, that does not need to be told what to do and one that is proactive. Talk to previous clients of mortgage advisers if possible to find out how they performed during the application process. Written reviews online might say they achieved the final goal – a mortgage, but the process of getting there may not have been smooth sailing. At the outset, explain to them you need regular communications during the process, even if the only update they have is ‘no updates from banks’. However, set a reasonable frequency for such communications that is agreeable to both parties. 

Stay tuned for more tips on property searching!

Cheers,

Sithru

Are you buying your first home? |Part 1

General Tips for the process

Based on our experience there are certain things that we recommend you do before even starting to look for your dream home – finding out the mortgage payment you can afford, Getting the services of a mortgage adviser, a buyer’s agent, and finding your lawyer are just some of it. The services of a mortgage adviser and the buyer’s agent are not mandatory but are highly recommended to ease the pain of doing the work yourselves.  

First you need to understand that buying house is not always the best option. For some people renting is much more cost effective and helpful in the long run. Owning a house means, you not only are paying higher rent as the mortgage, but there are added expenses such as rates payments, maintenance costs, and sometimes the need to make adjustments. Having said that, I must also say, having your own house means owning an enormous asset; that is never a bad investment. However, the discussion around the decision to buy or not to buy is for another post maybe. For now, I assume you are here because you already made the decision to buy.

1 Our first tip is to find out how much you could comfortably pay weekly, fortnightly or monthly as the mortgage payment. This is only to get an idea about how much you can afford as your mortgage payment.

You can use mortgage calculators given on any bank’s web page to do the calculation (this one is easier to use). The values you need for the calculation are:

  • The general interest rate that is currently used (I recommend using the floating interest rate),
  • The deposit amount you have, and
  • The potential loan value

Different calculators ask for either the cost of the house or the loan value. Cost of the house is how much a house will be sold for. The loan value is cost of the house minus the deposit value. This is the actual amount you will be borrowing from the bank.

E.g.: If the cost of the house is $550,000, and you can afford to have a deposit of $50,000, then your loan value is $500,000.

At this point in the process you may not have a clear idea about any of the actual values for house cost, loan amount or the deposit. Nevertheless, play around with estimates.

A general rule for your deposit is that it should sit somewhere between 10-20% of the house value. So it pays to know exactly how much you can put forward as the deposit before starting this process. There are multiple ways to accumulate a deposit. One is to save rigorously; Secondly, you can turn to parents or close relatives for a donation/gift (this cannot be a loan); or you can explore the grants available through KiwiSaver (or equivalents in your country) for first home buyers (sometimes available for second homes too). In reality, your deposit may have to be a combination of savings and either one or both of the other options.

We recommend doing the above mortgage calculation to figure out if you can afford to pay a mortgage at all, and if so within which range. Feel free to play around to find a number or a range, that you are comfortable with. At the end of the day, once you pay off all your bills, other mandatory expenses, and mortgage, you still need to have a comfortable amount left from your salary for emergencies and unexpected expenses.

This information is relevant to the New Zealand context. but you can apply the fundamental idea in any context.

Tell us in the comments below how the process goes in your country. Would love to hear more.

Stay tuned for the next tip in the series – Should you use a Mortgage adviser?

Cheers,

Sithru

Photo credit: http://www.interest.co.nz

Are you buying a house? Then you need to know these!

With the record lowest mortgage rates in the country, the property market is soaring since recently. We too decided to take advantage of this and buy our first home in New Zealand. Our journey to finding our future home was not of course smooth sailing but we used certain tactics on the way to minimise the stress. Since our process helped us immensely throughout the journey, we* decided to share our experience as a series under Sithru Life.

In part one of this series that follows (stay tuned!), I will share some general tips that might of use before you start the entire process. You could expect to hear some information about mortgage advisers, buyer’s agents, a cool tool we used to assess the house we viewed, and many more in the coming series. so stay tuned!

The aim is to post two to three tips a week. However, please hit ‘follow’ on the top right hand sidebar to get notified when a new post goes up!

Disclaimer: This series is only intended as a way to share our experience. This should not be taken as legal advice. Please visit settled.co.nz (or an equivalent source in your country) for legal information about the house purchasing process. 

(*I say ‘we’ because my partner is a silent collaborator in this series)

Photo credit: https://homesellingzinewebsite.puzl.com/