LENDING TIPS

Assess your financial position.
This is the first and most important step in the house or car buying process. You must know how much you can spend before you can determine what you can afford. You don't want to get stuck making a house or car payment that will leave you living on baked beans.

First of all, you need to have a monthly budget. This is very easy to calculate. Just add up all of your fixed monthly expenses, such as your rent, telephone bill, credit card repayments etc. Subtract that from your take home income. Then subtract your estimated  extraneous expenses (and be realistic here!), such as food,electricity, gas, and living. The result is your uncommitted monthly income. This is the figure needed to calculate your borrowing capacity.

Approaching the financiers
When you go to see the broker or bank for the loan, have all your financial details including a monthly income and expenditure, financial statements (if in business) or salary slips and a statement of your assets and liabilities. The statement of assets and liabilities is quite simple - just list you assets on one side - your liabilities on the other - take your liabilities from your assets to get a total of your net assets - hopefully this is a positive figure!

What is the market doing?
The first and most important thing to do is research the area or region that you are looking to purchase a dwelling or investment. Check out newspaper and Internet property listings and get to know area in which you wish to buy - its good spots and areas that you think will remain popular or have  increased demand. Walk the area thoroughly, attend lots of property viewings and auctions, talk to agents, and so on. The more informed your buying decision, the better it will be.

Mortgage Loans
The type of loan you select will affect not only the amount of interest you pay to the lender and the term or life of the loan, but can also have other options and add-ons that can help you realise future financial goals. Interest rates and your own circumstances change over time. So the more flexible your home loan, the more likely you’ll be happy with it over the longer term.

Interest rates and your own circumstances change over time. Typically the maximum life or term of a mortgage is 30 years, but almost any other time period can be negotiated, with shorter loans sometimes attracting cheaper interest rates. A lower interest rate and shorter term on the loan means you will pay less interest to the lender over the term of the loan; Saving you money. However, monthly payments on a shorter loan will generally be higher than those on the same loan set for a longer time period. The higher payments are obviously required to repay the debt sooner.

Conversely, a long term loan with smaller payments can be easier to budget for and mean less lifestyle sacrifices will need to be made. If you can afford to pay off your loan sooner, then a shorter term loan is often more advantageous.

Some of the features to look for in a home loan include:
• The option to swap from a variable interest rate to fixed interest rate, or a combination of both options.
• The flexibility to make additional repayments if and when you have extra funds
• The option to redraw some of your additional repayments.
• The choice of principal and interest repayments or interest only payments
• An offset account which reduces your interest costs.
• The option of weekly or fortnightly repayments to reduce your interest.

The two most common loans offered are fixed rate mortgages and variable rate mortgages. A fixed rate mortgage comes with an interest rate that is fixed for a set amount of time whereas an variable rate mortgage will fluctuate as the market changes. The benefit of a fixed rate mortgage is to protect you from the risk of increasing interest rates and subsequently higher repayments. If interest rates rise, you are fixed on paying the lower rate.

Conversely, if interest rates should fall, you are locked into the fixed rate and will pay above market rates for your home loan. A variable interest rate home loan allows interest rates to fluctuate with the market, depending on the economic environment. Initially, a variable rate will be lower than the fixed rate loan. However, if interest rates do rise in the future, it is likely the fixed rate loan will be cheaper. Deciding whether a variable or fixed rate loan is best for you will come down to your unique financial situation.

For example, if you expect your income to rise in the future, then a variable rate loan will help you to pay more back in the short term and should rates rise, you can still afford the loan because of your increase pay. You should also consider your risk tolerance. A fixed mortgage lets you plan and budget sometimes years in advance to make sure you can continue to afford the loan.

Don't forget - if you're buying your first home you may be eligible for the Federal Government's First Home Owners Grant. This can assist greatly in getting you into the house market. You may also be eligible for discounts on stamp duty and as this is under the control of the States, check with your State Government for details.

Be aware of the costs associated with your purchase: Inspection and legal costs, council rates, stamp duty, loan establishment fees, pest inspection, and mortgage insurance.

As soon as you sign the contract to buy a house have your insurance in place to cover all eventualities.