Owner Occupied Loan
Fixed Rate Loans
When purchasing a property, refinancing or just renegotiating with your current lender, borrowers can generally decide between fixed-interest loans that maintain the same interest rate over a specific period of time, or variable-rate loans that charge interest according to market rate fluctuations.
What Are The Pros?
Locking in the interest rate on your home loan can offer stability. Fixed rates are locked in for an amount of time that is prearranged between you and your lender.
Fixed-rate loans can be pre-approved. This means that you can apply for the fixed-rate loan before you find the property you want to buy.
What Are The Cons?
Borrowers may be restricted to maximum payments during the fixed term.
Borrowers can face hefty break fees for paying off the loan early, selling the property or switching to variable interest during the fixed rate period.
Interest Only Loans
Borrowing to buy a property and repaying only the interest for a set period can be a great choice for some, because interest-only loans can offer the right candidate financial flexibility while they invest. There are, however, some very important risks to take into consideration.
What Are The Pros?
It offers the opportunity to enter the property market with lower repayments
What Are The Cons?
Interest-only loan repayments do not pay down the actual purchase price of the property or reflect a realistic repayment on a standard mortgage, i.e. the principal amount borrowed will not reduce unless the consumer chooses to make extra repayments.
If the property's value doesn’t increase by more than the interest paid, they may end up losing out on the equity front.
Once a loan reverts to principal-and-interest repayments, borrowers who are unprepared may find themselves in a financial struggle.
Pre-approval is a lender’s assessment of your likelihood of being approved for an otherwise suitable loan. The appraisal is made on the basis of your ability to service a loan by looking into your living expenses and liabilities, your credit history, your employment circumstances and how often you have moved home or employment in the recent past.
When Is It Done?
As it is performed prior to a property being found and chosen, it does not take into account the particulars of a specific property and valuation, which is why uncertainties can arise.
Pre-approval is helpful for those who want to know how much they can borrow before attending open homes, and can be reassuring for new borrowers.
How Long Is It Valid For?
Pre-approvals are usually valid for up to 90 days but, depending on the lender, may be renewed to allow more time to find a property.
Is It A Guarantee?
A pre-approval is not a guaranteed loan. It is your potential lender’s way of signalling how much they expect to lend you. This may change on your official application.
Another thing that may cause a lender to decline your loan application after pre-approval is a change to your pre-approval circumstances.
Your pre-approval will also usually be conditional on a property valuation. If your lender does not deem the property a marketable asset, they may not approve a loan.
Construction loans are similar but just not as straightforward as simple home loans. There are additional decisions to be made about the structure of the loan, additional documentation is required and the funding is released in an entirely different way.
What Extra Documentation Is Required?
In addition to documentation about your finances, income and identity, your application for a construction loan needs to include contracts or tenders for the construction, as well as the plans so that a valuation can be performed.
Further documentation will also be required before the first payment is made from the lender to the builder, including a schedule of the payments to be made (called drawdowns), the builders’ insurance details and the final plans that have been approved by the local council.
What Is The Structure Like?
To avoid having to contribute your full deposit and being charged interest on the entire loan amount from the moment the land purchase settles, you can split your mortgage into a land loan and a construction loan. At settlement of the land purchase, you pay lender’s mortgage insurance (LMI) on the land loan, if LMI applies, and start being charged interest and making repayments on the balance of the land loan. The interest and repayments on the construction portion then kick in only as each drawdown is processed.
What Is The Funding Procedure?
The drawdown schedule is very important, as you don’t start paying interest on each portion of the loan until it is paid to the builder – you, the lender and the builder need to be satisfied with the schedule.
For the lender to make each payment to the builder, you will need to fill out a drawdown request form from your lender, and submit it to your builder. The builder can then send the lender your form with an invoice for that part of the payment and, after the lender is satisfied that the work has been completed and is up to the standard expected in the valuation, the drawdown can be completed with a payment to the builder.
Any changes to the contract and plans can trigger a reassessment of the loan, so be as sure as you can be that the plans and contracts the lender sees are final, and it is also worth trying to pay for any small amendments from your own pocket, rather than changing the loan and risking a reassessment.
HomeBuilder Renovation Grant
The HomeBuilder Renovation Grant is a $25,000 tax-free grant designed for owner occupiers and first home buyers only. It is federal government scheme initiated since August 2020 to help continue the Australian residential construction industry and trades activity in general.
Am I Eligible?
In order to qualify for this scheme, you must:
Be a first home buyer & the new property value or construction cost is less than $750k.
An owner-occupier & your property value is less than $1.5m and the renovation cost is between $150k - $750k.
An Australian Citizen (Permanent residents, company, trusts, owner-builders are not eligible).
Have the build or renovation contract is signed by 31st December 2020 and the construction work must start within the 3 months of the contract signing date.
The grant is given to buyers or owner-occupiers after the construction work has started and the first progress payment for the construction has been made. The owner occupied renovators have to provide proof of renovation (signed contract) to State Revenue Office to receive the grant after the work starts.