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What is Mortgage Insurance?

August 21, 2011 By Leave a Comment

Today I am going to write a quick section with the intent of dispelling the fallacy that many people have about lenders mortgage insurance.

You may have heard the term Lenders Mortgage Insurance (LMI) or even paid it yourself when taking out a loan at one stage or another – but do you actually know what it is?

So what is it you ask?

LMI is a form of insurance you pay (a one time fee) to a lender ( in addition to the loan amount you are applying for). Whilst it is not a legal requirement, it is a requirement of most lenders if you are borrowing greater than 80% of the value of your residential property. The price is generally higher the higher your Loan to Value (LVR) is.

So who does it insure?

LMI insures the lender. One common misconception is that it covers ’you’ the borrower in case you default, which is untrue. It is actually a form of insurance for the “lender” to cover the higher risk of lending you are requesting. Essentially it is the lender charging you a premium for them to minimise their exposure to lending at such leverage.

Whilst this may sound like a bad thing – for the most part it isn’t. LMI can allow you to buy that property you were after sooner, and with less of a deposit than you thought possible. Yes it can cost a bit more upfront (unless you capitalise the LMI onto the loan) – but it is a fact of lending in todays market, and you just have to realize the additional costs if you are looking to borrow over 80% from one of Australia’s lenders.

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Need a Home? It’s Time to go Shopping!

July 14, 2011 By Leave a Comment

I have pulled together my July Top Tips for you to keep in mind when you go out shopping for your home:

  • Be a Smart Buyer

Need some tips for shopping for a home?An informed buyer is a smart one. There are numerous resources available to you through the internet. Realestate, Domain, RPData and even the ABS are fantastic sources of information on the property or area you are looking to buy in.Know

  • What You Can Offer

There is no greater feeling than finding the house of your dreams after you have been shopping around for months (or what might feel like years!). You put your offer down, and it has been accepted by the vendor! and now you just need to sort out the finance.. right? To avoid the horrible feeling that you have overestimated your spending capability and won’t get approved by a bank for what you offered to pay – make sure you find out your borrowing capacity and obtain pre-approval before you offer.

  • Get Your Inspections Sorted

This might sound simple, but it still surprises me that many people don’t get (at least) a pest and building inspection done on a property. Most buyers would spend several hundred dollars getting a 10 thousand dollar car inspected – so why wouldn’t you do the same with a purchase worth hundreds of thousands? It’s always better to know what you are in for – than find out the hard

  • Know Your Settlement Date

I feel a little silly putting this tip in – but problems occur from this too often for me not to. Especially if you are moving out and need to leave your own home as a vacant possession – you need to plan for when you are able to move in or make final payment. It’s equally important to note the date on the contract of sale specifies a number of “days” till settlement. One common mistake is to think this is from the end of the cooling off period – but it’s actually from the day both parties signed/exchange.

  • Do your final walk through

Pretty straight forward – but I recommend you make sure this happens. There may be something you missed or you notice a contract inclusion that isn’t physically there anymore.

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Save The Embarrassment – Get Your Pre-Approval today!

May 26, 2011 By Leave a Comment

There is nothing worse than committing to a contract on your new home or investment and finding out later that a lender rejected your loan. This could be for a number of reasons, possibly:

  • You are unable to service the requested loan amount
  • You don’t have enough of a deposit to cover the loan
  • Or a number of other reasons

 

This is why obtaining a pre-approval is a necessity!

 

It doesn’t cost you a cent, but on the flipside can provide the following:

 

  • You to organise your loan structure beforehand
  • Provide the confidence for the amount you can borrow
  • Puts you only a step away from an unconditional approval
  • Gives you the luxury of time

 

I always recommend my clients obtain a pre-approval (especially!) before making an offer on a property in writing. As said, it’s a necessity. Not only will it provide you confidence in your buying limit, but it safeguards you – maybe from making a hasty decision on that house you have been eyeing or the mistake of a “too high” bid at auction.

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