Home Loan Basics—What You Really Need to Know Before Applying

Welcome to Home Building Like a Boss, the podcast dedicated to helping first home buyers in Perth build their dream home with ease and excitement. I’m Jamie, your host and go to building broker. Are you ready to feel empowered, in control, and excited about your building journey? I’ll help guide you with expert advice, insider tips and tricks, and real life solutions.

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So excited to announce a new addition to our podcast episodes. Welcome to Tanya Monden. It’s an honor to have you here as a co host for our episodes on all things finance. I don’t know what to expect, but I’m excited. So excited. I’m so excited. So we decided that we’re adding this new fun segment on all things finance.

So basically you can expect to have Tanya on all my episodes on finance. She’ll be co hosting now rather than just a guest. So, um, you can send us questions and anything related to finance will help you, support you and give you education and tips on what you need finance wise through the process, how to get into property.

We just want to. Buy it for them, don’t we? Yeah, pretty much. Make it fun. Yeah, fun and give you everything you need to know and get into building your first home. All right, Tanya, let’s chat about, well, we should chat about how we work together on what we do. So Tanya helps me with quite a lot of my clients in the finance process for house and land packages.

So together we work very closely on working out. What clients can afford, what they’re eligible for, and then working together through the process for the application, getting building contracts, and then formal finance and settlement. So we do quite a lot together. We met a few years ago now, two years ago, almost three years ago, 2021.

Wow. Tough guys. Yeah. Yes, it does. And we’ve done a lot together. We have. Our collaboration’s just kind of grown, hasn’t it? And I think when I started BOSS, it really started to blossom together and we work as a team and yeah, it’s so great. And now you’re my co host. I know. I’m excited. So excited. Thank you.

Well, do you want to tell everyone a little bit about… You and your experience, what you do as a mortgage broker. Yes, so people get confused. They think that I work for the bank and I definitely do not. I work for many different banks, I guess, in a way. But I try to find you, just like Jamie tries to find you the best builder, I try to find you the best bank that suits you and your needs.

Because every bank has different schemes, grants, all that type of stuff. And my job is to… Relay that information back to you. And I’m the one that does the research. So you can just focus on the build. I’ve been doing this for almost three years now, and I do a lot of construction. I love house and land packages.

I don’t know how I fell into it, but when I was building my first house, I just found. My broker was really helpful and I now work for him. I just want to make things easy for people. Yeah. Because it is a daunting process. So daunting. But it doesn’t need to be. Yeah. You just need the right team. Yeah. Like you and me.

Yeah, like us. Absolutely. Yeah, so good. And… Yeah, we basically do the same thing, but on the build side and the finance side, I don’t work for a builder. You don’t work for a bank. We’re independent and we do all the hard, stressful stuff. Yes. And then we add that together and we do it all in one. And that’s how you get your dream team.

Yeah, absolutely. All right. Today on our episode, we are going to be chatting about the initial step of Finance and what you need to get into your own home. So when you are going through the building process, I like to split it up into three different steps. So your first is your most important is finance.

So finance, you can’t go looking at houses or blocks or designs or builders, although which a lot of people do before getting your finance numbers. There is no point going to look at a display home or a design or a builder or a block. Without knowing what your budget is, you could be looking at a million dollar home and you can only afford half a million dollar house and land package, you are not going to cut out 500, 000 to reduce that down, then you’re going to be disappointed and sad and then, then you just probably won’t build because it’ll be too hard.

But we all have looked at houses we can’t afford. Guilty! Yeah. Um, but yeah, I agree. You need to get your finance sorted first. Otherwise, you’re just wasting your time and you’re getting your hopes up when you realize you cannot afford a million dollar mansion. Yes. That is true. And we’re all always expectation and reality is always so different.

So working out one, your finance and your eligibility, and that’s where Tanya and I work together is, and Tanya will help work out what is your finance eligibility and what can you borrow to then work backwards where I come in. How much can you spend on land? How much for the build? What’s your budget?

What’s your non negotiables? And work it out from there. Tanya, what are the basics if somebody’s looking to get finance for a build? What are the basics that they need to know first? Well, we get them to complete our finance form. So Jamie will send you a form to complete and then that comes back to me.

And then I use all of those details to have a look at different banks because every bank is going to lend you a different amount of money. And then we can just go from there. But on that form, it will ask you for your income. Your payslips, so I can actually match it up because some people think they’re on 90, 000 a year and really they’re on like 60.

So I need your payslips to actually make sure that what I’m looking at is accurate. Step number two would be your living expenses. So if you’re spending a lot of money. We understand that a lot of it is discretionary because you will prioritize paying your mortgage before you prioritize getting, I don’t know, your hair and nails done.

Coffee every day. Yeah, and that too. Gosh, that adds up. Um, but for your expenses, you need to make sure that you’re not overspending. And if you are overspending, then are you even saving money? For a deposit. Are you saving any money at all? Which is number three. So how much savings do you have? It’s totally fine if you have nothing.

We have people come to us that are like I want to build but I have no savings. Totally fine. We’ll put you on a savings plan. Yeah, and we’ve got like a goal for you to achieve that within three months, six months, whatever you can actually afford. Also people don’t realize but if you are renting through a property manager, There are some lenders that will count your rental history towards your genuine savings.

Yeah. That’s great. I love using that. People don’t realize. Yeah. But that’s why it makes sense because you’re paying the rent. So technically, if you want, there’s your savings. There’s your savings. Yeah, correct. So some lenders understand that. Um, the next step would be your debts and your liabilities. So things like if you have a student loan or a HECS debt, Or buy now pay laters, car loan, personal loan, credit cards.

Also, if you have a credit card and it’s completely paid off, let’s just say you’ve got a credit card and the limit’s 10, 000, but you have zero owing, like it’s just there for emergencies, the banks are going to include that 10, 000 debt as if you actually spent it all, because you could go spend that money tomorrow.

And put yourself into debt. So just keep that in mind as well. Cause some people don’t declare their credit cards to me. And then when I run their credit scores, I’m like, wait, you have a secret credit card, you need to close that now. Um, and the last one is your credit scores. So make sure that you have a.

good credit score. Some banks don’t even credit score at all, but we have to run a credit check to make sure that you look good so that we actually know which banks to avoid or which banks to actually take you to. Um, and your credit score is important because it really does limit what banks we can and can’t go to.

And it shows us your repayment history over two years. And it tells us if you’ve been bankrupt or not. So we need to know that too. With credit scores, Tanya, I always have people ask me when doing the free finance check, does that affect their credit score? What’s the difference between a hard credit check and a, like, a soft credit check?

Yes, um, people are always scared to send the finance forms because they’re like, Oh, they’re running a credit check against me and I’m like, no, no, no. We don’t run a, we run a soft credit check. So it won’t actually be seen on your credit score. It won’t show up at all. The difference between the soft credit checks that we do, it’s basically just us viewing your score.

We’re not actually putting anything against your name, but when you make inquiries online to multiple banks, let’s just say you’re shopping around for different banks, trying to get, trying to see who’s going to approve your home loan without doing your research and using more broker first. Every time you go online and make that inquiry, they’re doing a hard credit check against your name and it’s putting a mark against your name that you’ve asked for money and it does affect your score.

So that’s really the difference. We are just viewing it. That’s why it’s called a soft credit check. Yeah, that’s good to know. People always say that and I always freak out. don’t want you to do that. But yeah, there’s the difference. Yes. So applying for a credit card, that is a hard. Yes. Yeah, so that’s gonna go.

Because they’re digging deep, whereas we are just literally viewing it. Yeah. So now, once. People have filled out the health care check, touched a few payslips, given you what their savings are, if they have any debts. What is the process from here, and what do you do? On my end, that’s when I look through All the information that you gave me, I might find discrepancies or maybe sometimes I don’t find anything on your payslips because a lot of people come to me and I’m like, um, we’re getting underpaid.

Did you know this? They have no idea. So I can pick up on little things like that because I can see what questions the bank. My ask from there, I will do servicing with a few different banks to see which bank’s going to lend you how much, if you are going under any government schemes, then I’ll just run the servicing calculators based off that particular bank or the few banks you might be eligible for.

Um, and then I go back to Jamie and I let her know how much your borrowing power is. And then from there we can determine your package. So if you can borrow 500, 000, then I know that your loan is going to be. 475. Um, so then you can start searching for a 500k package. Yeah. Genie. And so if we’re looking at a 500k package, what do, what kind of deposit do you need with a 500k package as an example of a rough number?

Okay, so this is just very general in nature, but as an example, if you were to do a 500, 000 house and land package, your loan would be 475, 000. This is if you’re going under the government scheme, if you’re eligible. From that amount, your genuine savings would need to be 25, 000. So you need to genuinely save over three months 25, 000.

And what, what is classed as genuine savings? It’s money that’s coming from your actual income, because that’s how you’re genuinely saving your funds. Yeah. You can get gifted funds, but it needs to sit in your bank account for three months, and we do still like to see you save on top of that to prove that you can also save.

If you are renting through a property manager though, this is where that can come into play, and we might be able to use your property. Or your rental ledger from the property manager as genuine savings. Your genuine savings is just the bank’s policy of what they need you to save in order to acquire for the home loan.

But your funds for settlement, so your actual deposit that goes to the bank is a little bit different. So, from that 25, 000 that I’ve just mentioned, You would only need to hand over to the bank around 19, 000 of that. And that’s probably a little bit of an overestimate on mine, because I like to overestimate things to make sure that you have enough money.

If you are not eligible for the first homeowner grant, it would actually be 29, 000 that you need. But the grant generally, if you’re building, you’re eligible. Covers, yeah. It covers a good chunk, which is great. That was a 5 percent deposit. So what are the difference between like a 5 2 percent deposit? So the figures I just gave you were based off the 5 percent government scheme.

So that’s called the Home Guarantee Scheme, but there is another one called the Family Home Guarantee Scheme, which is a 2 percent deposit. And that is for single parents. So it’s just targeted to help people. That our single parents save a less deposit because they might not reach that five percent deposit.

Yeah, because it is Even though it’s only 3 percent different, it is still a big chunk to get there. Uh, and then we also have Keystart, which also does a 2 percent deposit. They are not part of the government scheme, but they do also waive the lender’s mortgage insurance. So that could be another option for you as well.

With Keystart, you get a high interest rate. but a lower deposit compared to going with a bank for a 5 percent deposit and then a lower interest rate than what Keystart can give you. So I guess they’re your pros and the cons for bank versus Keystart and your differences. Yes. Generally. So the scheme is really good.

Um, at the moment it’s just for Australian citizens, but first of July, that’s going to change and open up. So that would be interesting to see their new, um, conditions. Yeah, and that basically means that with a 5 percent deposit, you don’t pay any lender’s mortgage insurance. If you don’t go under the scheme, you’re paying lender’s mortgage insurance on a deposit less than 20%.

So if you were going with a bank at 5%, you would be paying a portion of that of lender’s mortgage insurance. So the scheme is really good. Yeah, you save what? 10 percent to… Oh, 20, 000 on lenders mortgage insurance? Yeah, yeah, usually with our house and land packages people are spending, that can’t go under the scheme, their LMI is about 15, 000.

Yeah, so that’s a lot. And that mortgage insurance doesn’t even protect the customer, it protects the bank, so. If you can’t pay a loan. Yeah, so that’s not even beneficial, yet you’re paying it. Yeah. So let’s avoid that and just try to go under the skin. Yeah, definitely. Much better option. Yes. If you come back to me once you’ve done all your checks and someone is currently not eligible for a package, what do we do to help them through that process?

Because we do get quite a lot of people that come to us very early, which is great because you plan in advance and we can help put stepping stones in place. Can we help if people aren’t ready now eligible? Oh, if you aren’t ready now, well, it would be what’s the reason that you’re not eligible just yet?

Is it your pay is a little bit too low to service a loan? Is it your debts are too high? Maybe it’s a mixture of both. You have good income, but you have a lot of debts. How do we? Mitigate that to actually get you a home loan. Um, that’s when I’d probably look at consolidating your debts or seeing if you have extra savings that we don’t quite need because we’re not even applying for finance yet for you to pay out some debts.

Um, I would work with you to see what’s going to actually benefit you. But debt consolidation is usually where we would go. So we, if anyone that doesn’t know what debt consolidation is, um, it’s when you have, let’s just say you have five different loans, cause let’s be real. Everyone’s got about five lines going on to buy an app.

Hey, there’s a credit card, a personal loan, car loan. Um, I would just look at how much your monthly commitments are to those loans. Let’s just say by the time you. Pay all those loans each month you are it will it cost you like a thousand dollars you’re spending a little bit too much but let’s just say your monthly commitments is a thousand dollars and if we were to consolidate them all it will drop down to five hundred dollars a month which means you then have five hundred dollars In your pocket, yet you are paying down all your loans.

That means that your debt to income ratio might improve because you’ve just saved yourself 500 bucks a month. Yeah, that makes sense. Yes. Dropping your, making your debts lower. Yeah. People don’t understand the concept of it, so I hope that simplifies it a little bit better. Um, but basically it’s just putting more money in your pocket, which means that’s more money that you can actually use to pay a mortgage and it might be able to help your borrowing power.

Yep. What debts, can you give us an example of some debts that people have and ones that impact home loans quite a lot? Buy now pay latest would be number one. Most lenders at the moment will ask for them to be closed because you’re basically paying for things that you could have just paid cash and you just chose to put it on a loan like.

Yeah. Did you even have the cash in your bank account to pay it off, or are you just trying to spend more money but you want to pay different installments over the next three or four months just to pay that off? Um, they don’t really like it, so they’ll generally ask for it to be closed. So I see that a lot.

And because there’s so many different facilities out there, I see people have every single one possibly under the sun. Um, and that’s a lot of money that adds up and then you keep buying stuff that you actually can’t afford because you’re like, Oh, I’m just going to pay 20 for this 200 item, I’ll be paying 20 a month.

Like that’s nothing to me, but then you have five going on at the same time and adds up. Yeah, that probably couldn’t afford it in the first place, to be honest. But anyways, um, we also see HECS. So people forget that that is a debt. It’s on the HECS.

Oh my God. You’re paying that off. Um, and I can tell cause it’s on your payslips or at tax time, you need to pay a lump sum, whatever arrangement you might have. People forget that that is a debt though. Um, and if you do have that money coming out of your payslip, that’s less money in your pocket again. So you could have been having, you know, 400 extra per month and now you have to pay that to your HECS debt.

They just don’t realize that it does affect your servicing because there’s less money in your pocket in the end of the day. So that can affect your borrowing power as well, um, and then we just have the normal ones like personal loans and car loans, and for those, um, people generally have one or the other.

It still affects your borrowing power of course, so please don’t go out and try get a car loan just before you want to get a house. Do that after you get that? Right before it’s gonna get approved. And they’re like, hey, I just rolled up in my new car, and I’m like, oh my god, why did you do that? Yeah, like get it, get your house first, your brand new house, and then get a brand new car to match your brand new, like, what are you, no.

Yeah. Yeah, yeah. It doesn’t make sense. Doesn’t, no. And then they just get too excited. Yeah. Um, so please don’t do that, because if your new car loan’s costing you 500 a month, And we just consolidated all of your debts and saved you 500 a month. You’re now back to square one. Yeah. Like your, your, your debt to income ratio is just too high.

Yeah. So keep that in mind too. Try eliminate debts. No debts. No debt. If you can. If you have debts, like, you can still come to us and you might be absolutely fine. But if you’re really struggling in your living paycheck to paycheck and you have these buy now pay laters, you need to ask yourself, Why? And do you think you’re overspending?

Because I know that you’re overspending. But do you think you are? It’s just about making smart decisions to get to your end goal of getting into your own house or out of your rental or into your, out of your parents property. Yes. Make smart decisions for a certain period of time that you need to improve your savings, lower your debt, do the right things, have a good income, um, to be able to service and get into your home loan.

And then. The other things can come after that, but then at least you’ve done those right things to get into a house. Very true. But we’ve all done it. We’ve all had debts that we probably shouldn’t have had. Um, and even when I was getting my first home, I had debts to pay off and I was hustling away, working overtime at my hotel job, I was doing Uber Eats delivery.

Have I ever told you this? I think so. I don’t know. I can’t remember. You gotta do what you gotta do. People seeing me rock up with Uber Eats bags was so confused. And I was like, got to get my house pop up sorted. So we’ve all done that. We’ve all been there, but Jamie and I just want to help you. Yeah.

Cause we’ve been on the other side as well. Absolutely. Tanya, what’s one. Tip or helpful advice that you can give people who are in the early stages who are not quite sure what to do Like what’s something that they can work on? I did a activity When I was getting my house and I think it is helpful people to do this as well But I printed out Maybe don’t print because that’s a waste of paper, but I’ve printed out back then, um, three months of bank statements because I wanted to figure out how I can save and where my money was going and how much these coffees every morning was costing me.

Adds up. Oh, everything adds up so quickly. So I printed out three months of bank statements. I only have one bank account, so it was quite easy. Um, and I just sat there with a highlighter. And a glass of wine, because you need wine in order to go through your medicines. Trust me, you do. Um, and I just sat there with a highlighter and I highlighted all in yellow my necessities, like my car insurance.

My food, my car loan, stuff like that. Things that I actually had to pay I just highlighted in yellow because I knew there was nothing I can do about those costs. Then in pink I started to highlight everything that I didn’t need to buy. Like I had a buy now pay later and I probably didn’t need those extra clothes, I just wanted them.

And I wanted to go out for dinner so I spent X amount fine dining. I didn’t need to do those things. They’re lovely things and I always do them once in a while. But when I was on a mission to save for a house, I needed to know, okay, if I want to save X amount of dollars in the next three months to be able to have my house deposit sorted.

Then I need to start the process now. And I got to really understand my, I guess, how I spend money? Yeah. And where I should be minimizing my expenses. So I, I did buy coffees every morning, but I went down to the dollar coffees from the service station. 7 Eleven. Yeah, they don’t have it anymore. It’s 2 inflation, damn inflation, but it was a dollar back then.

And I was just doing that instead of getting my five to 6 iced coffee. And you know what? Don’t regret it because I’m in my house and I’m happy and life’s good, but that is a really good activity for people to do. I know it’s hard when you have multiple bank accounts, so just do your. Just do the one bank account where it’s your everyday transaction so you can really see where your money’s going.

And then, this is going to be a little bit depressing, but once you’ve highlighted all of your wants, the things that you didn’t need to spend money on, I’m going to add it all up and visually remember, cool, I wasted 1, 200 this month for the next three to six months. I’m not going to have that behavior.

So I’m going to change my financial behavior and I’m going to start saving towards a house deposit. And then you end up with savings. The house deposit. Exactly. They’re the smart, smart decisions that you do, like in the lead up to get ready, get prepared. Yeah. And that’s a really good activity that like outlines it.

Yes. I hope that helps people. Yeah, for sure. I think I’ve done that a few times as well and it’s helped. And we’ve told clients to do that too. Do you still do that now, Jamie? Be honest. No, I haven’t done it in a little while, but I definitely probably should because I need to come down on some spending.

Same. It’s okay. Well, Tanya, I think that is us for today. That was super exciting on our first finance episode and having you on a co host. It was so much fun having you here. Thanks. It was fun. It was. And today we spoke about basically all the initial stuff you need to know. For finance, which is the first step in your finance land build process and your most important things like your income, your debts, your savings, your expenses, and a little bit, a few tips and tricks that you need to help start planning and getting the door.

All the information that we’ve given on this podcast today is general in nature, but if you would like us to review your finances in detail and actually tailor it for you, then you can click on the show notes and we can book a call in with you. Yeah, we can help you set up a plan, look at your finance, eligibility and what you need and kind of discuss all those things that we’ve spoken about today.

That’s specific to your situation. And don’t be afraid if you think that your finances is a mess because we see it all the time. And our goal is to clear it up to help you. Yes. To get you into a home. We want to help people get into homes. Yeah, absolutely. All right. Well, thank you so much for being here.

Thank you. And we’ll, um, be back on another finance episode soon. Okay. Thanks. Bye. Thank you so much for tuning in to the home building like a boss podcast. I hope you enjoyed today’s episode and learned something new. Remember, you’ve got this and I’ve got your back. Until next time, stay inspired, stay informed, and stay confident on your building journey.

I can’t wait to chat with you on the next episode. Don’t forget to check out the show notes for more information and free resources. If you haven’t already, hit that subscribe button so you never miss an episode of the Home Building Like a Boss podcast.