The Basic Facts When You Shop for a Mortgage

Real estate is likely to be the largest purchase of your life. A home loan will most probably be your single biggest financial commitment. So it makes sense to do your homework to ensure you choose the right mortgage.

Selecting a home loan can be quite complex process, made harder by the sheer volume of options and choice available. There are countless loans available for you to choose from, each with its own interest rate (fixed or floating), fees and degree of flexibility. These key features all have an impact on how much the loan will cost you and when it will be paid off.

One of the most important considerations when shopping for a home loan is calculating what you will need, and we're not just talking about the purchase price of your new home. For instance, if you're purchasing a home that's going to need some work, how much cash will you need to carry out the renovations in a year or two? If this is the case, you need to be shopping for a loan that will let you re-draw money for this in due course.

Every bank and lender has different lending guidelines, very important to understand this (rates are NOT the most important part in choosing your mortgage), but as general rule, most will let you borrow up to...

• 80% of a home's market value (or the price you pay, whichever is less) depending on your situation. 
• 70-80% for a purpose-built apartment, or up to 65% for a converted apartment; and
• 50-75% of the land's market value for a section, depending on the area and services, such as water and power.

It is very important that you have a realistic idea of how much you can afford in monthly mortgage payments. After all, you don't just want a home - you want a life as well!

You also need to decide on the 'life' of the home mortgage, as well as the 'term' for the interest rate that you will pay, if you select a fixed rate. The life of the home mortgage is commonly 20, 25 or 30 years. This represents the length of time in which your home will be paid off (if you pay regularly and with the specified amount). The term usually varies anywhere from six months to five years, after which time you need to decide on the length of another term, or opt for a floating interest rate.

Reducing the amount you need to borrow is an important consideration. That's why saving as big a cash deposit as possible is such a great plus factor - especially if you're a first home buyer. After all, the bigger the deposit, the less you need to borrow. You can also keep your loan amount down by negotiating really hard on the purchase price of your new home, as well as by finding a loan with a competitive interest rate and fees.

In a nutshell, the following is a step-by-step guide through the mortgage process, although this may vary from lender to lender:

• Once you've decided on the home you want to buy, the lender and the loan you decide is best for you, your first step will be to submit a home loan application to the lender.
• After consideration, the lender may confirm approval "in principle" or
• Depending on the amount you need to borrow, you may need to arrange a professional valuation of the property.
• Depending on the amount you need to borrow, you may need to arrange a professional valuation of the property.
• Once that has been approved, if required, the lender will formally confirm your approval and start preparing the loan documents.
• You, in turn, will need to arrange building insurance, as the lender will need a copy of this before they can arrange settlement (some lenders offer insurance also, so it's a good idea to enquire about this when you apply for the loan).
• The next step is the signing of the home loan documents.
• Then it's simply a matter of waiting for settlement day which is the day the loan funds are made available.

You'll probably spend quite a bit a time house-hunting to make sure you get the home that's just right for you. Be just as careful about choosing the mortgage that will fit your needs best.