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Choosing A Loan Not Based On Interest Rates Alone

The most affordable interest rates in decades from many financial institutions offers those with a stable income an attractive opportunity to make an investment in the housing market and in their own future.

But one of the traps for the unwary is borrowing too much.

Buyers, whether planning to buy their first home or to buy a more expensive home, must consider exactly what sort of house they can afford.

This involves more than just knowing current interest rates.

Prior to inspecting a property buyers should list their exact requirements of their desired home. This will assist to prevent emotional purchases and ending up with a higher than expected loan amount.

Additionally buyers should analyse all the costs, including fixed expenses and regular costs, that may be incurred living in a new house and then decide which home they can afford.

Even with this information, buyers shouldn't use the maximum amount that a lender is willing to provide if there is no way to increase repayments should the interest rate increase. Also, buyers are sometimes limited in their options if they want to switch between variable, fixed, and capped loans and further fees usually apply.

There are a variety of bank charges associated with taking out a home loan. These include application fees, valuation fees, mortgage insurance, legal and account keeping fees and an overall fee.

When looking for a suitable home loan, be sure to compare the fees charged and services offered by different financial institutions.

When you have established the costs and you know what the monthly repayments on your loan would be, prepare a budget detailing your expenses.

Carefully compare the budget with your income and ensure you have enough
disposable income to cover any unexpected expenses.

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Housing As An Investment: Build Or Buy?

With Australians having one of the highest per capita love affairs with property of any industrial country, it is no surprise that many want to invest their money in bricks and mortar.

But the question being asked by many is whether they should build their dream home, buy an existing home, or buy a new home.

Those who buy an established home have the benefit of seeing exactly what the surrounding houses look like and how well they are maintained by the residents.

This is a definite advantage when compared to building a home on a new development, particularly in the early stages, where you may be building your home before the neighbours build theirs and also subject to the additional pressures of construction.

Choosing an established home also enables you to judge the home for street appeal and potential for improvement based on what you can see.

Usually, the previous owners have already done all or most of the work to establish the home. This makes it easy to judge whether your income will be enough to cover your loan repayments and leave sufficient to ensure you a reasonable standard of living. If it is an older home, you can budget for repairs, re-painting and general maintenance.

For others, the pleasures of stepping into a new home outweigh any work necessary to establish the home, such as gardens, paths and driveways. Floor coverings, curtains, light fittings, turf, fences and the driveway can be included in the buying price.

It is worth noting that those who have bought new, and have the time, can save money on the cost of establishing the home by doing as much of the work themselves.

If you want a new home and don't want to wait to move in, then one way around that is to try and buy a "spec" home: a home that a builder has already built and is offering for sale.

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Planning When Buying Pays Dividends

Using a systematic approach to buying a home can save you hours of work and considerable heartache.

If you approach buying systematically, you can also optimise your chances of getting the best deal for your money.

To form a plan, you will firstly need to talk to David Linco HOME LOANS and establish the price range in which you can buy.

Once the buying range has been established, the next step is to prepare a suburb priority list based on personal preferences. Sit down and consider where you would like to live and for what reasons.

Always remember: "It is better to buy the worst house in the best street, than to buy the best house in the worst street"

You need to think about accessibility to work, such facilities as schools, hospitals and shops according to your needs. It is also advisable to visit the area after hours, to see what the neighbourhood is like at night.

Be receptive to professional advice from real estate practitioners but remember that it will be your home and your decision.

By using this approach, prospective buyers can assemble and absorb market knowledge about each of the preferred suburbs or areas quickly.

One last word of advice: a house is worth what the buyer is prepared to pay for it. Naturally, sellers have an emotional attachment to their home and this can sometimes result in overpricing.

So if you like the house, but are not prepared to pay the full asking price, make a realistic offer. You may be pleasantly surprised!

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Taking Advantage Of Interest Rates

Record low interest rates are offering those with a stable income the chance to make a great investment in the housing market and in their future.

Potential buyers consider exactly what sort of house they can afford. This involves more than knowing what the current interest rates are.

With interest rates so low, it is tempting to choose the house of your dreams, which may be on the market for $150,000, and to make an offer for it because the monthly repayments will be low.

But if you are a smart buyer, you will analyse all the costs involved in buying that home. Some first-home buyers fall in love with the ‘bells and whistles’ of honeymoon rates and forget interest rates may soon return to higher levels.

Too many potential buyers approach their banks, ask how much they can borrow, borrow that amount, and then look for a home for that price.

Smart buyers will take into account all property acquisition costs, fixed and regular expenses that may be incurred living in a new house and then decide what they can afford.

There is a variety of potential bank charges associated with taking out a home loan: application fees, valuation fees, mortgage insurance, legal and account-keeping fees, and a set-up charge.

These charges can be considerable. When you are looking for a suitable home loan, be sure to compare the fees charged by different financial institutions.

When you have established exactly what costs your loan involves and you know the monthly repayments, it is a good idea to draw up a budget.

Some first-home buyers buy homes in cheaper outer suburbs or nearby townships and then commute to work each day. However, you may be served better by buying closer to the city and reaping the capital gains that are sure to follow.

This way, you can take advantage of the increasing trend towards inner-and near-city living.

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Which Home Loan Will Suit You?

While lenders are actively competing for the hearts, minds and purse strings of home buyers, the question you as a buyer should ask is: "Which product suits our budget?"

Deciding which loan suits you is an important financial decision. To help you get a clear picture of what each organisation has to offer buyers should list questions to ask.

Finds out what are the options, the interest rates and types of interest being charged: fixed, variable or capped.

If the rate is fixed or capped, find out for how long. A capped interest rate is similar to a fixed interest rate as it will not increase beyond a certain level for a set period. Unlike a fixed interest rate, a capped rate can fall.

You should also see if you can pay out the loan early and, if so, whether there is a penalty.

Also, ask whether interest is calculated monthly or daily. If it is calculated on your minimum daily balance, you will benefit from making weekly or fortnightly repayments.

Be sure to ask about establishment fees and other costs associated with taking out a loan. Remember that these costs vary widely between lenders.

Buyers leave some margin in their loans so that they can make increased repayments should interest rates increase.

Many lending institutions now offer redundancy insurance. This insurance is usually available at reasonable rates and will take care of your loan repayments for a set period should you be made redundant.

Find out what deposit will be required on the sort of home you want to buy. This can vary markedly between lending institutions. You should also know that if you have only a relatively small deposit for your new home, your lending institution might require you to take out a mortgage insurance policy.

Some organisations also offer mortgage offset accounts that automatically use any interest generated to pay off your home loan. Alternately, some lenders allow borrowers to redraw money already paid into the loan.

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Property Inspection Scorecard

In your search you are likely to see many properties. As the specific features of each will become blurred, it is a good idea to record your first impressions of each house you visit. This will help to compare houses and assist your recollection of property features.

Make up a copy of essential property characteristics and take these with you when viewing properties. Make sure your record the property address, date of visit, agent's details and price range as well as property and location details.

When inspecting, be sure to pay attention to key details to ensure no nasty surprises if you intend to purchase. It is essential you properly inspect any property you intend to purchase so you know the exact condition of the property. This way there will be no expensive surprises once you take possession.

The following are some aspects you should consider when inspecting any residential property.

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Inside the House

  • Check all floors are level and there are no gaps between the floor and skirting boards.
  • Jump lightly on wooden floorboards to assess their stability.
  • Look for signs of rising damp, including rotting carpet, mould on the walls or ceiling and musty odours.
  • Check walls and ceiling for warping and cracking paint. Fresh paint or wallpaper may be hiding problem areas.
  • Assess whether doors and windows are square. Jamming or tight closures may indicate structural subsidence.
  • Make sure all light switches and power points work.
  • Test the water pressure in both hot and cold taps. Ideally, turn on several taps simultaneously and listen for water hammer noise.
  • Partially fill the bath or sink and observe the drainage of this water. Poor flow could indicate damaged or blocked sewer drains.
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Outside the House

  • Inspect fences and gates for stability, tension and rot.
  • Are there any large trees near or overhanging the house? The root systems of trees can cause structural subsidence if they are close to the home. Council approval may be required to trim these back.
  • Check that the land's water runoff drains away from the house.
  • Inspect all outside walls. Are they straight, cracked or rotten?
  • The condition of the mortar between the bricks must also be assessed.
  • Make sure there is adequate sub-floor ventilation.
  • Check the condition of the eaves. Water staining may be an indication of damaged gutters.
  • Look at the line of the roof to make sure it is straight. Are there any broken tiles?
  • Check the stumps for subsidence, rot, borer or termite attack.
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Arranging a Professional Inspection

If you are not technical or professionally able to fully inspect the property, you could arrange for an professional inspector to review the property.

Professional inspectors will examine every accessible part of the home, including the roof space and sub-floor. They will check for poor structure, leaking roofing and guttering, subsiding footings, faulty wiring and plumbing, dampness, rot and many other faults. Comprehensive inspections will take 2 to 4 hours.

You should be provided with a written Inspection Report following the inspection. This will inform you of any property faults, how bad these are and give you a guide to probable repair costs. Inspectors may also be able to give you qualified advice on any home improvement ideas you may have.

With this information you can then decide whether you wish to purchase the property or make an offer based on the inspection report, placing you in a much better negotiating position.

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Building Inspectors Can Be Found By:

  • Asking for referrals from your local Master Builder's Association, Housing Industry Association, Architects' Advisory Service or Institute of Building Consultants,
  • Looking in the Yellow Pages telephone directory under Building Inspections and Building Consultants.
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