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Navigating Insurance and Mortgages for First-Time Home Buyers

Buying your first home can be an exciting yet daunting prospect. It is also likely to be the most expensive and possibly complicated purchase you’ve ever made.

So, to avoid being underprepared for the process and feeling overawed at the thought of completing it, you should make an effort to educate yourself on what to expect.

A couple of aspects you’ll need to focus on, in particular, are mortgages and insurance. You most likely won’t be able to purchase a property without the former and would definitely need the latter to protect your assets.

Outlined below are some of the things you’ll need to consider.

Once you understand them, the process of buying your first home should be much smoother.


What is a mortgage


Before you start looking for a first home to purchase, it is a good idea to get pre-approval for a mortgage.

A mortgage is a financial commitment you agree with a bank or lender. It involves you borrowing a substantial amount of money from them in order to purchase your home on the proviso that you repay them over a specific length of time and at an agreed rate of interest.

The amount you can borrow from a lender will depend on a few factors but typically is up to 80% LVR (loan to value). In other words, 80% of the overall value of the house you want to purchase.

To do this you would usually need to have a 20% deposit saved up.

To put this into context. If you want to purchase a property worth $500,000, you must have a minimum of $100,000 deposit in savings. This will enable you to borrow $400,000 from the bank (80% of the property’s overall value).


How to get a Mortgage


There are two main ways to secure a mortgage. You can either approach a bank or financial lender yourself or engage the services of a mortgage broker.

If you decide to approach the banks yourself, you should first do some research as to who offers the best interest rate. You can access this information either directly from their websites or comparison websites.

However, interest rates are only one aspect of mortgages. You will also need to consider other aspects such as length of the loan term, repayment frequency, ability to overpay (to reduce the overall amount you owe), redraw facilities and whether you can take payment holidays. (i.e., not paying your mortgage for a particular time period if you are having cashflow issues).

This can be a complicated minefield to navigate for someone who has never purchased a property before. Therefore, it is a good idea to get help from a mortgage broker.


What is a Mortgage Broker


A mortgage broker is an individual or company that acts as a middleman between you and banks. They offer home buyers a free service that helps them find the most appropriate home loan for their needs. The lenders pay a commission only when a mortgage application has been successfully approved.

Several different types of home loans are available, including fixed-rate, variable, fixed-and-variable, and even some backed by the government.

As the mortgage market is extremely complex to understand, Get a Better Rate is a first home buyer mortgage broker you might want to approach.

They, and similar companies, specialise in finding the best loan terms available for their clients and can, through their knowledge of the various types of loans available, save them thousands of dollars’ worth of interest.


What Insurance do I need?


When purchasing a home, there are a few insurance plans you may need to take out. They include the following:


Lenders Mortgage Insurance

For those who don’t have a 20% deposit to put down for the purchase of their home, Lenders Mortgage Insurance is a good option.

This is a type of insurance taken out by a lender to protect them from customers who are not able to fulfil their mortgage commitments. Usually, it is given to home buyers – in the form of additional fees on their loan – who fulfil all the criteria of a home loan other than having a 20% deposit.

If a bank has to make an LMI claim, its insurers pay it. However, the home buyer is still liable for the outstanding debt, which may be recovered from them.


Building Insurance

Before they will settle your home loan, most lenders will require you to have building insurance.

This is a safety measure that covers your structural property for damage or loss caused by specific, insured events, such as storms, fires, floods, power surges, and theft.

It also helps to safeguard the property as an asset for the bank.


Home and Contents Insurance

Home Contents insurance is another important policy to take out as it covers the overall cost of replacing all your possessions in case of such events.

This can include electrical appliances, furniture, jewellery, artwork, and clothing.