Here at Perspective, we don’t usually hand over the reins to a single author, but we felt Andrew’s first step to home ownership would be better off coming from the horse’s mouth. You see, with a bit of prodding, Andrew visited a mortgage broker last week. And this was his experience:
My name’s Andrew. I’m 25 years old, married to my high school sweetheart and finally finding my feet in the full-time workforce, having dabbled in numerous ventures both here and overseas since my early 20s.
I’ll be straight up with you…I’m not really a “money” guy. In fact, my money-managing is generally so poor that it’s not uncommon for me to stray dangerously close to an aneurysm when paying by card, so frequent are the “Declined – see bank issuer” messages.
I’ve worked as a tailor, a barista, an industrial cleaner, a construction-hand and a funeral musician. Securing full-time work, though, meant for me that I was no longer a financial burden on my wife, Rose, and the pennies started to tick over in a more consistent manner than it did when I was waiting by the phone for news of another funeral.
Although we were starting to put away more and more money, I still associated buying a house with something only “adults” did. As someone who regularly wears odd socks, forgets to take money to the supermarket and has been known to drive to the airport sans-passport, one could surmise that I struggled with this thing called “adulting”.
That perception changed when Rose and I attended an information night hosted by Independent Property Management, where Mark Edlund from Clarity Financial Group gave a presentation on buying your first home.
I’d always associated mortgage brokers with dodgy back-door deals; I perceived them as sharks who fed on those in crippling debt to a bank for their own benefit. The actual role of a mortgage broker, though, is in stark contrast to what we’re often fed on the big screen.
As we sat at the back of the 80-strong audience in attendance, we did the sums and crunched some figures on the spot, discovering that we were potentially already in a position to get our foot into the property market. To give you an idea of the sort of numbers we were contemplating, check out this article on how big a deposit you really need to purchase a home. The next step, according to Mark’s presentation, was to go and see a mortgage broker, and seeing as the meeting was obligation-free and more importantly, free, we booked an appointment.
Before our appointment, I received a call from our broker, Nitish Kumar, who required some preliminary information before we met. I laid down each of our salaries and contract types, our savings, our current rental repayments and our property goals. Nitish then emailed me a selection of documents, including a Client Information Form to complete and return with our financial and personal details, a Credit Guide outlining exactly what would be involved in taking out a loan and a Document Checklist with what we needed to bring.
We walked into the Clarity office about 10 minutes prior to our booked appointment time, and needless to say, we felt pretty out of place. The office fit-out was incredibly sleek and adult-y, and neither Rose nor I could shake the feeling, “What the hell are we actually doing here?”
Nitish walked straight up to us, and I was instantly impressed by his no-fluff, direct approach to his work. In his opening spiel, he took us through exactly what the role of a mortgage broker was, which up until that point, was something that still eluded Rose and me. The key takeaways from this introduction were that:
- We would never pay Nitish a cent for his services;
- He got paid the same amount regardless of which bank/mortgage we chose – there was no reason for him to promote one over another;
- He could negotiate discounts on interest rates with nearly any lender we chose; and
- Clarity has over a 99% chance of getting your loan application approved, simply because they won’t apply if they think there’s even a chance it’ll be rejected.
It’s important at this stage that you understand the role of a mortgage broker. To apply for a home loan, you can either go directly to the bank or go to a mortgage broker. At the bank, you’ll probably be missing some of the necessary documentation, you won’t have access to special discounts and the bank doesn’t care whether you’re successful in your application.
A mortgage broker only gets paid once you’re successful in applying for a loan, so they have a vested interest in your successful application. The benefits to this setup are two-fold: they won’t even apply to the bank if you’re in any doubt of securing a loan, and they have access to better discounted interest rates, saving you heaps on repayments over a 30-year period.
With a mortgage broker, you’re still borrowing money from the bank, but the entire application process is performed by the mortgage broker on your behalf. Essentially, from a borrower’s perspective, a mortgage broker provides a free service and has a higher chance of securing a better loan at a lower interest rate…sounded like a pretty simple choice to us.
Once Nitish got to crunching the numbers, there were a lot of terms that we’d never heard of before, like L.M.I., L.V.R., split loans, variable loans…pretty much any mortgage-related term he said if I’m being honest. After all, we were in the absolute preliminary stages of our house-hunt, so we weren’t too fussed about being all over every financial concept instantly.
Originally hailing from Melbourne, both Rose and I had toyed with the idea of purchasing down there, so we could move straight into our own place when we eventually returned to our home city. Nitish quickly calculated that, factoring in the increased stamp duty for an investment property rather than an owner-occupied property, we’d need around an extra $27,000 to pump into the deposit, as the stamp duty for an investment property is non-deferrable in Victoria. So instead of a deferred stamp duty payment of ~$13,000, we’d be looking at an upfront cost of ~$27,000…our decision to NOT purchase in Melbourne had been made for us.
When asked what sort of price range we’d been looking in, neither Rose nor I had any meaningful concept of what we could afford, and Nitish got to doing the sums. From the paperwork we’d already completed and knowing our monthly living expenses, Nitish could easily calculate our borrowing capacity and repayment capability and told us that we were ready then and there to purchase anything up to around $500,000 quite comfortably.
Well that did it. If we weren’t freaking out enough already, that was the straw that broke the camel’s back. We both went bright red and our stomachs simultaneously backflipped on themselves, and when the slight nausea and shock finally subsided, the meeting was over. We’d just been coolly told we could make an offer on any house up to $500,000 with no qualms whatsoever, and the resulting emotional concoction was a potent mixture of palpable excitement, overwhelming nerves and a steely determination to stop paying rent.
We had seriously thought we were years away from buying a home. It was a dream for another time and would have stayed a dream if we hadn’t made that first, free, baby step towards home ownership – visiting a mortgage broker. Now the dream is a plan. Watch this space.