Getting a home loan in Australia
MOVE TO AUSTRALIA | Everyone needs a place in which to live, and finding a property in Australia comes with its own lingo, processes and challenges. In this article, we look at purchasing your own Australian home in which to live, as well as for investment purposes.
DEPENDING on your financial circumstances, you will need to choose whether to purchase a house before you arrive (one or both of you needs to be an Australian citizen or have Australian residency), or rent until you find something suitable once you get to know your new city.
Either way, you will first need to have a deposit saved up and then transferred from your home currency to Australia. You will also need to provide your financial circumstances and allow for extra fees incurred in the process of purchasing.
The Commonwealth Bank (sponsors of Move To Australia) has a wide range of options available to you, and their experienced team of accredited mortgage advisors will assist you every step of the way. It is also imperative to note that every state has different rules and regulations, so having an advisor on hand is crucial to setting you up properly the first time and lightening the load on your pocket.
Your Australian home loan deposit
One of the first questions you are likely to be asked when you apply for an Australian mortgage is how much of a deposit you have. It sounds obvious, but many people overlook the real advantages of saving a substantial deposit, which may help reduce the amount you need to borrow and may help reduce loan repayments. Furthermore, a larger deposit will also give you the opportunity to choose from a wider range of properties in Australia.
Australian home loan borrowing
The amount you can borrow is usually calculated as a percentage of the property’s value. The Commonwealth Bank for example, generally lends up to 80% of the property’s value. However, it can lend up to 95% of the value (subject to lenders’ mortgage insurance).
For a lender to give an indication of the amount you can borrow, you will have to let them know:
- Your gross income (CBA will use your UK income to determine loan serviceability should you be moving to Australia within six months);
- The amount you have saved towards the purchase (deposit);
- The amount of your current commitments (credit card limit, other loans);
- Your preferred maximum loan term.
Once you have approval for the loan, and have agreed a property price, you usually will be required to notify the bank to make arrangements to sign papers such as mortgage documents (which can be delivered to the UK if it is before you arrive in Australia).
Australian mortgage lender charges and fees
Some of the fees you may need to pay to a mortgage lender (eg. CBA) include:
Application or establishment fee
This is charged by a lender when you make a formal application or when you take out a home loan in Australia.
Lenders may value a property before approving your loan and may pass this cost on to you.
Lender’s mortgage insurance
This is insurance that protects the lender, if you borrow over 80% of the property’s value.
Australian Government fees and charges
Stamp duty on contract or transfer
This is a fee paid on the purchase price of the property, or in some cases, the valuation of the property. The amount varies by state or territory in Australia and is paid prior to or on settlement of the property.
Stamp duty on the mortgage
This is calculated on the amount borrowed.
The Land Titles Office charges a fee to register any document relating to your property.
Other fees and charges in Australia
These fees are not always applicable, as they depend on the lender, mortgage amount and circumstances of the purchase:
- Legal/conveyance work
- Title searches
- Searches of government department records.
- Certificates from councils, water board, other.
- Pest inspection
- Pre-purchase property inspection
- Removalists costs
- Connection fee for gas, electricity and telephone.
First Home Owner’s Grant Scheme in Australia
This is where it gets interesting. Certain Australian states (many states are phasing it out, so best to check with your mortgage adviser!) give people assistance in completing their first property purchase. This scheme generally only applies if you live in the property for the first six months within a reasonable time after the settlement date, and you will usually receive the money on or around that date.
Investment Property in Australia
Buy-to-let properties in Australia follow a different set of rules to buy-to-live, namely that the First Home Owner’s Grant Scheme will not apply. Banks usually will have separate deposit requirements and also different products, according to how you want to structure your mortgage.
The reason why this is important is that there can be a number of tax advantages in Australia to negatively gearing investment properties, specifically that things like depreciation of the bricks and mortar and other fixtures are usually fully tax-deductible, as well as interest repayments, maintenance, and inter-state travel costs.
Now that you’re in the know of the basics of purchasing property in Australia, it is then best to engage the services of a financial advisor, who can assist you with making all those seemingly tough decisions.
Move To Australia: In association with Commonwealth Bank of Australia, helping with all your banking and foreign exchange needs.
Visit the home loans section of the Commonwealth Bank website now for more information.