Buying property can be complex. Whether investors are buying their first property or not, budgeting for their investment involves lots of market research and planning.
As a real estate agent, investors may come to you with questions about home loans, government help, and grants. To help you provide the best advice to your clients looking to invest in property, we’ve rounded up five insider tips that you can share with them – they’ll love you for it!
#1 Research grants and other types of government help
In Australia, there are a few government programs that incentivise people to buy property. For example, first-time homebuyers could be eligible for the First Home Owner Grant (FHOG).
Run by state governments, the first home loan deposit scheme offers a one-off grant to Aussies entering the real estate market. To apply, applicants need to be 18 or older, and a citizen or permanent resident who’s never owned or co-owned property before.
Each state has its own criteria beyond that. In NSW, you must be buying or building a brand new home that’s worth $750,000 or less, and planning to move into the property within 12 months and live there for at least six months.
If your client meets that criteria, they’ll get $10,000 to put towards the purchase price of the property and save thousands of dollars in duties and fees.
Some states offer stamp duty concessions, too. To find out whether they qualify for financial assistance, they can contact their state revenue office or ask a mortgage broker to comb through the fine print.
#2 Budget for closing costs
When your client is crunching the numbers to figure out how much house they can afford, remind them to consider closing costs. That’s one of our top tips to buy property, as they can expect to pay an extra 2 per cent to 5 per cent on top of the purchase price, and more if they need to get insurance or put down a higher deposit. Then there are the running costs that come with owning a property, such as maintenance and utility bills.
Depending on the property, these are some of the fees and charges to factor in:
● Loan establishment or application fee. This covers the lender’s administrative costs, as well as bank legal and settlement fees. You may also be charged a document preparation fee.
● Appraisal fee. The lender will hire a valuer to determine the value of the home, and use this number to decide how much money you can borrow.
● Rate lock fee. Going with a fixed-rate loan? If investors pay this fee, the lender will lock in the rate at the time of their application, so there will be no surprises when the first repayment is due.
● Security guarantee fee. If investors are using a guarantor to help them lock in a home loan, they’ll be charged a small fee.
● Lender’s mortgage insurance (LMI). How much do you need for a house deposit? Most lenders require a deposit of at least 20 per cent of the purchase price, while others are happy with 10 per cent or even 5 per cent.
If you take them up on that offer, you’ll need to buy LMI to protect the lender in case you default on the loan. It’s standard practice, and usually adds up to 1 per cent to 3 per cent of the loan amount.
● Income protection insurance. While this coverage is optional, it can protect your client in case they get sick or injured and can’t make their mortgage repayments for a period of time.
● Solicitor or conveyancer cost. These experts can go through the legalities of the property transaction and prepare any legal documents.
● Stamp duty. State governments charge this fee to transfer the land from one person to another — but as we mentioned earlier, some states will waive the fee for first-time homeowners.
● Building, pest and strata report inspection. These reports outline the structural integrity of the building and let you know about any problems that might lead to costly repairs later on. A strata report will also inform you about any work that’s been done to an apartment building.
● Potential renovations, repairs and utilities. As a homeowner, your client will be responsible for maintaining the property, so they should consider these bills and expenses. If they’re planning to rent out the property, it’s also a good idea to have a little financial leeway until they find a tenant.
#3 Pick the right mortgage
If we had to use one word to describe the mortgage market, it would be “diverse”. There is a range of home loans investors can choose from, with different payment structures and interest rates. It can be confusing, but a mortgage broker can help navigate the different options and pick a home loan that suits your client’s financial situation.
One of the biggest decisions investors will need to make is choosing between a fixed-rate or variable loan. With a fixed-rate loan, they’ll be locked in at a set interest rate, and their payments won’t change for a period of the loan. It’s the most predictable option, so it’s a good fit for most people.
On the other hand, variable rate home loans fluctuate, so their repayments might go up and down depending on market conditions. Variable rate is a better fit for those who want to take advantage of any interest rate drops. Then there are split-rate loans, which offer the best of both worlds but are fairly rare.
Home loan interest rates aside, look at payment plans. Some lenders will allow you to make additional repayments whenever you have extra cash on hand, while others will charge a penalty for paying off your mortgage early.
#4 Shop around for home loans
Along with being diverse, the mortgage market is competitive, and rates, fees, features and deposits can vary significantly between lenders. With so many lenders vying for their business, your client will be in a great position to compare home loans and offers. Some lenders will also “price match” or reduce their rates for new customers.
So, instead of choosing the first attractive loan they come across, recommend that they use that as a baseline to shop around.
Working with a comparison company like Savvy makes it easy for them to look at home loans side-by-side and find the best mortgage rates. Savvy partners with 25 lenders across the country, including all major banks, so they can guide your client towards the top mortgage for their budget and goals.
#5 Get expert advice from a mortgage broker
Your client will probably wonder “do I need a mortgage broker to buy a house?” No, they don’t, but as you’ve probably guessed, there are many pieces to the property buying puzzle.
If they’re giving off the impression of being overwhelmed at the thought of comparing lenders and closing costs, you can recommend that they call on a mortgage broker.
Mortgage brokers know the lending industry inside and out, and they’re legally obliged to outline all of your viable options. In other words, the industry is regulated, so they can’t give any lender preferential treatment. However, they can help investors cut through the clutter and find a lender and loan that meets their needs.
That’s not all. Savvy’s financial professionals can also help your client apply for grants, assess their borrowing potential and put together your loan application. They can also negotiate mortgage rates on their behalf, as well as more favourable loan terms.
Empower your client to get the best possible home loan
Investing in property is equal parts exciting and daunting for investors. As a real estate agent, you have the power to make this process smoother and much less stressful. Provide extra value to your clients by sharing these insider tips and help them get the best deals on their dream home.
For more information visit Savvy