What Is a Home Loan?

April 20, 2021 - Posted in Multi-Choice

A home loan is a type of loan you get from financial institutions to finance your residential property. The loan can be used to build, refinance, buy, or renovate a home. In Australia, home loans go to a term of up to 25-years or 30-year loan term and accrue some interest.

There are myriad types of home loans or mortgages in the market as there are different factors to consider when choosing the best loan to suit your needs. These loans are structured based on the following factors:

  • The loan purpose: Lenders will want to determine if you require the loan to buy a home for your family, to buy property for investment, or to refinance an already existing mortgage.
  • Type of interest rate: The interest rate can either be variable or fixed. Variable interest rate means that the lender can alter it anytime. On the other hand, a fixed rate means that the rate can’t be altered for the agreed period. The interest rate can also be split, meaning that some loan amount has a variable interest rate and the rest is fixed.
  • The principal or interest repayments: Your loan type can also be based on whether you will pay the principal amount plus the interest accrued or only the amount of interest from the borrowed amount (principal).

Keep in mind that the security of your loan is your property. So, anytime you default, the lender is allowed to evict you and sell the property to another person to recover their debt. That said, how can you easily apply for a home loans?

How to Apply for a Mortgage

A couple applying for a loan

There are two key ways in which you can easily apply for a mortgage.

  • Via a bank
  • Through a mortgage broker

But before you decide on the best way to go, it’s advisable to the types of loan that will perfectly suit your needs.

When to Apply for a Home Loan

A couple signing a contract

There are a number of tips that you should understand before initiating the mortgage process. And the most important one is when to apply for a loan. You can apply for a mortgage before or after finding a home.

Before Finding the Preferred Property

A person holding a keychain

You may choose to apply for a loan before settling on a certain property. This is what is referred to as pre-approval or conditional approval. This option helps you to determine the amount of loan that can be advanced to you.

Although this is not equal to the formal approval, it will help you to work out the price of the property you might go for as well as the location.

With most lenders, the pre-approval home loans period lasts for three to six months.

After Finding the Preferred Property

A happy couple who just bought a home

You can still take your time and look for your best property before approaching the bank or other financial institutions for a loan. Although most borrowers prefer this mode, it might be frustrating at times.

You might have settled for a highly-priced property against the loan amount that you can qualify. This might mean that you have to repeat the whole process. Also, when buying a home in an auction, you should be sure of the available amount before suggesting your price.