You decide to purchase a home, but need to secure a loan to pay for the purchase of the home.
You will need to have a deposit (one-time payment with personal money) to secure a home loan. This is usually 20% of the loan.
Be sure to agree to the mortgage you will be comfortable paying, not the home loan for which you qualify. Know your monthly financial living needs.
Once you have the deposit for the purchase of the home you apply for a home loan with a bank. On approval, the bank lends you the money to purchase the home (the price the seller has asked for the home).
Before being allowed to take the loan, the bank does a check-up on your financial situation. This means checking your annual income, future expenses and credit history (checking your credit to see if you have any unpaid debts to the bank or other financial institutions). Based on this information you are either approved or declined to borrow money from the bank.
The bank also checks that the security you are giving for the loan (your home) is adequate – the building checks and LIM report are all up to standard. A home loan as opposed to a credit card is securing debt, the bank secures the money they are willing to lend you by using your home as security.
The bank then sets up a payment plan where loan-takers pay the bank back each month. You can talk to the bank about the length of the repayment plan. The length of repayment will have a bearing on how much you pay per month.
There may be other ongoing costs to consider (such as mortgage insurance, utility bills, maintenance, etc). These are typically paid on a monthly basis.
Remember, now that you’re a home owner, you will also start to pay council rates.