Nine Factors to Evaluate Before Applying for a Home Loan in 2024

With property prices steadily climbing in 2023, more Australians are considering becoming homeowners or upgrading their existing abodes – here is what to keep in mind before taking this step.

With interest rates potentially continuing their upward trajectory, applying for a home loan can present many obstacles for first-time home buyers and upgraders alike.

Preparation is key when purchasing your dream home – to help speed the process, we consulted experts about nine things they advise considering prior to filling out an all-important loan application.

1. Assess Your Borrowing Power Bankwest Executive Manager Specialist Lending Stephen Harper recommends doing some preliminary research into your current financial status and what amount can afford to borrow.

Your financial success depends on a range of factors such as income, expenses, debts and credit score.

Engaging a mortgage broker, lender, or using online calculators can give you an understanding of your borrowing capacity.

“Every homeowner’s situation differs, and what works well for one individual might not be suitable for someone else,” according to him.

2. Your Credit Score
Lenders assess your creditworthiness based on your credit score.

2024 will mark a pivotal year for digital finance and microlending, as both sectors become even more focused.

Australia allows individuals to easily gain insight into their credit scores by requesting free reports from one or more major credit reporting agencies – each year you are entitled to receive at least one report free from each agency.

Be sure to regularly review and correct any discrepancies on your credit report, such as SavvyShield from Credit Savvy which provides protection from anyone seeking to impersonate you for financial gain; learn more here about how SavvyShield can keep your score safe and secure.

3. Interest Rates
It’s essential that you do your research on potential rate changes and factor them in when calculating your monthly repayment capability.

Stephen suggests Bankwest’s Fixed Home Loan offers those considering fixating a home, the security of knowing their interest rate and repayments in advance.

Homeowners can select a fixed rate period ranging from one to five years, helping manage budget and feel secure knowing they will make consistent repayments throughout.

Before signing any fixed rate loan agreement, Stephen advises it’s wise to carefully consider its potential consequences should you wish to break it during its fixed term; break fees might apply and there could be restrictions regarding additional repayments allowed or repayment caps that might need to be adhered to.

4. Additional Costs
Your dream home won’t come cheap; remember to factor in inspection fees, stamp duty payments and conveyancing charges as well as potential mortgage insurance costs when making this important financial decision.

Stephen says these costs can quickly add up and alter the amount of borrowing required.

“Knowing all of the costs associated with home purchasing is key in order to avoid unpleasant surprises,” according to Forbes contributor Jason Whelan.

“Depending on your circumstances and where you reside, stamp duty exemptions or concessions could apply when purchasing your first home.

5. Loan Features
Not all home loans are created equal.

Do you require an offset account or the ability to make extra repayments without incurring penalties? Ensure the loan you’re considering meets both of these needs while providing flexibility you require.

6. Existing Equity
Existing equity in your property can be an invaluable resource when looking to upgrade.

If the value of your property has increased, borrowing against it may allow you to finance renovations or improvements that might otherwise cost a great deal more.

“To help navigate the process and provide insight into what your finances may look like afterward, reaching out to a lender or broker can be extremely useful.

7. Your Loan-to-Value Ratio (LVR) LVR stands for Loan to Value Ratio; this measures the difference between what you wish to borrow compared with the property value.

Lower LVRs often yield more competitive interest rates and can even help you sidestep lender’s mortgage insurance requirements.

Stephen suggests maximizing your deposit is the key to securing a lower loan-to-value ratio (LVR).

“Customers aiming to save on mortgage insurance premiums when applying for home loans will likely need a 20% downpayment in order to do away with lender mortgage insurance fees.

8. Your Investment Goals Depending on whether your aim is to purchase a primary home or investment property, loan options and rates available to you could vary significantly; investor loans tend to attract higher rates than owner-occupier loans.

“Investors looking into renting property could reap financial gains by doing so; however, several key considerations must be kept in mind, including where there is high renter demand and any differences in interest rates between investors and owner-occupiers” writes Stephen.

9. Your Existing Mortgage It may be worthwhile reviewing the home loan you already have to ensure its efficiency and performance.

Switching loans can result in significant savings and allow for the incorporation of features more suitable to your current needs.

Engaging a mortgage broker or lender can bring clarity and tailored advice specific to your unique situation. They will guide you through the vast array of loan options and help ensure you find one that’s suitable.

*This article has been brought to you by Bankwest, a division of Commonwealth Bank of Australia with ABN 48 123 123 124, Australian Credit Licence 234945 and can assist on your Home Buying Journey – for more information go to bankwest.com.au/homeloans