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Below you will find my best attempt to cover the major points to think about when securing a mortgage in Australia. As you will appreciate it would not be possible to cover all the points in one single article, so if you should require any further information, do contact me via the email below.

Let’s start with people who do not hold Australian citizenship or full residency status - they too can purchase a property, subject to Foreign Investment Review Board (FIRB) approval. There is a process you will have to go through, an application to fill and some information you need to supply. Click here to learn more.

The most common question people ask me is “What evidence of my income will I need to supply?”. For a Full Doc loan, you will need to supply a copy of your most recent payslips or a letter from your employer detailing your income and length of employment. Different rules apply for LiteDoc loans and for self-employed applicants. You have the choice to have your accountant verify your income or you can certify it yourself.

Now let’s move on to types of loans.

Variable Rate

A Standard Variable home loan offers more flexibility, with many lenders offering additional features such as redraw facilities, chequebooks, the ability to make lump sum payments or to transfer your loan to another property in the future.

A Basic Variable home loan is generally about 1 per cent cheaper but offers few added services. No frills and low cost.

With either type of variable loan the interest rate charged moves up or down with the official ‘cash rates’ as set by the Reserve Bank (RBA). So, if they go up, so do your required repayments, but if they fall so do the required repayments.

Fixed Rate

With a fixed rate your interest rate, therefore your repayments, stay the same regardless of changes to the official ‘cash rates’ set by the RBA. If you think interest rates will rise or you prefer to have some certainty about your repayments over the term of the loan, a fixed loan may be more suitable.

Lenders will normally offer a fixed rate for periods of up to five years. However, if you lock into a fixed mortgage and rates fall, you’ll miss out on the lower rate. Also, during the fixed rate period extra repayments may not be allowed and penalties may apply for early repayment or exit.

Combination (or Split) Loans

A Combination or Split loan offers borrowers the ability to set part of their loan as a variable rate loan and the other part as a fixed-rate loan. It’s akin to having a bet each way, in terms of where rates may go.

Introductory loan - Honeymoon rates

Many lenders offer so-called honeymoon rates. The interest rates offered can be significantly lower than the prevailing variable interest rate, although, the introductory rate only applies for a limited time of usually between six and twelve months. After the introductory period, generally, rates revert to the standard rate of the time.

Home equity loan or Line of Credit mortgage

From lender to lender this type of service can be structured differently, basically, it gives you access to equity that you have built (the difference between asset valuation and amount owed). So, in effect any payment you make can be drawn back out as long as the interest charges are being met. This type of loan may be useful to investors or business.

Transactional Account or All-In-One loan

This type of loan is normally set up as a complete transactional account with the mortgage, savings and cheque account combined. As a rule, all your income and cash deposits are paid into this account which reduces your loan balance. A credit card is often linked to the account and monthly payments drawn from the transactional account. Gains desired could be from utilizing interest free credit card periods to allow income to reduce interest costs.

Mortgage Offset account

The mortgage or loan account is linked to a savings account into which your salary and other cash can be deposited and from which you can withdraw to pay everyday expenses. For as long as money sits in the savings account, it is ‘offset’ against your loan and no interest is charged on that amount.

Low-Doc

A low-doc or no-doc (doc=documentation) loan is ideally suited for investors or self employed borrowers who may not have, or want to share, income records. No tax returns or financial reports are generally required, although, a higher interest rate and/or fees may be charged.

I realize that the descriptions above are only the tip of the iceberg and eventually you will need to discuss you personal preferences and financial situation with a professional - which is where my company comes in.

AIMFS provides loans for expatriate and temporary resident borrowers. We provide a full range of fixed and variable rate loans with standard loan features as outlined above. Funds are available to purchase or refinance an established dwelling, or an off the plan purchase, subject to the borrower obtaining Foreign Investment Review Board approval and appointing a recognized Australian based law firm and Power of Attorney to receive loan documents and notices after settlement.

You can contact me by phone + 61 (7) 56304365 or email info@aimfs.com.au or learn more about our services via our website.

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The purpose of the second inspection is to notice all the major advantages and disadvantages of the property, including things that will inevitably cost you money to add, fix or replace. There is a difference between “want to fix” and “must fix”. For example, if you’re buying a house with an old rotting fence and it falls over, you will have to replace it, so this is a “must fix” situation. On the other hand, if you’ve bought a house with an old dishwasher that you don’t like, you might want to replace it, but while it works you don’t have to.

When calculating a price you will offer on a house, you should consider all the things, replacement / addition of which will cost you money immediately after you move, because that literally means that the house costs you that much more.

There are things you can’t see or feel (like the size of the land) and will have to ask the vendor or the estate agent - don’t be afraid to disturb them, call and ask because you need to find out.

The things you need to pay attention to include:

General information about the house and the land

• Land Size
• Land Shape
• Ceiling height
• Type of hot water system installed
• Is there a rain water tank or a watering system

House-related

• The condition of the inner and the outer walls, whether they insulated or not
• Gutters - new/old, in good/poor condition

Roof

• What kind of tiles (terracotta/concrete/metal), insulated or not
• Condition - good/poor

Heating/Cooling

• Whether installed, what kind(ducted/gas heating, evaporative cooling/air conditioning), in what rooms

Windows

• The condition of window glass and frames, of the fly mesh and the curtains

Doors

• The condition of the doors and door frames, wire doors and fly mesh

Floors

• The type of floor coverings (boards, carpets, laminate) and the condition - good/poor

Bathrooms

• The condition of taps, bath tubs, sinks, shower screens, toilet bowls

Kitchen

• What kind of appliances are there (and are being sold with the house), what sort of the benchtop is there

Outside

• The condition of fences and retaining walls - good/poor

I’ve created a simple checklist that you can print and take to inspection #2. It helped me a lot to inspect houses and remember all the important details. Enter your name and email in the boxes below and I will send it to you.

Happy house hunting!

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Inspecting houses is different for investors and first home buyers. Investors are more experienced and therefore can spot things (even on a first inspection) that are literally invisible for most first home buyers. Another thing is that they don’t have to like the house they are buying because they won’t be living there anyway. Having said that let me explain my approach to inspecting for first home buyers.

There is no way you can thoroughly inspect the house when you come to the first inspection. Even if you could, I’d say it would be inefficient. Why bother inspecting a house you might not even like? This means we need to inspect a house we like at least twice: the first impression is established on the first inspection, if it’s a positive one then on the second inspection you should use a full checklist and pay attention to all the details.

So I’d say that on your first inspection you can manage to look at the 10 following things and then decide whether that house is worth another look:

• House type - house / townhouse / unit
• Construction type - double brick / brick veneer / weatherboard
• Ceiling height - low / high
• Number and sizes of the rooms - bedrooms / family rooms / living areas, en-suite / built-in robes
• Number and sizes of bathrooms - big / small, shower / bath
• Kitchen size and looks - big / small, new / old
• Entertaining area - yes / no, covered / not covered
• Established garden - front / back, yes / no
• Garage/carport - yes / no
• Paved driveway - yes / no

I’ve made a nice 10 item checklist for you to print and take to inspections. Enter your name and email in the boxes below and I will send it to you.

I hope you find your home this weekend!

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However, recently we can see a different trend. Influenced by a whole range of circumstances, a house is not being seen as a castle and becomes a temporary living arrangement at the current stage of a person’s life. It is more of a quick solution so that a person would have a place to live while chasing a better life style.

Naturally, this approach to housing significantly affects the way houses are built. The houses are not built to stand for ages any more, they built quickly to satisfy the increasing demand.

Once people have become “gypsies” so to say, their homes start to resemble tents more than houses, but only by the quality, as the price is still very high. Those “tents” are filled with equipment: air conditioning, TV sets, modern kitchen, washers and dryers, heaters and more. A man is giving up the castle but not the comfort.

Looking at the damage a reasonably strong wind can do to houses in North America, seeing how houses in Australia burn to the ground before their inhabitants can even get out, we understand that this is the price we see for the new trend, the drifting away from “a man’s home is his castle” principle. This is the price we pay for breaking the basic rules of construction and of common sense that go way back into our past.

The price we pay for a house doesn’t reflect its real features any more - the quality of materials it’s built from, it’s energy-efficiency of the construction itself, the talent of the architect and the engineer who designed it. The price now is defined by the size of the house, its location and the reputation of the whole surrounding area.

These factors are not to be dismissed lightly because we’re living in a real world, not an imaginary one. However, the consideration of house qualities should start with it’s structural soundness and the compliance with building norms and regulations.

There are two questions that are critically important, especially in the light of the recent bushfire crisis - the fire safety of the building and the fire-stopper gaps between the buildings. A very common structure type is brick veneer - a wooden frame with a 12cm wide brick coating.

This kind of structure can be classified as a wooden structure. The fire regulations in countries covered by woods, where people have high standards of fire safety (such as Russia, for example) require a fire-stopping gaps of 15 meters between the dwellings. Here in Australia in many cases the gaps between houses are much smaller.

And now a few words about the structural soundness of the house and it’s energy efficiency. Needless to say that 12cm of brick, wooden frame and 8mm of gyprock are not very energy efficient. The combination of this structure type with the large windows (not even double-glazed) makes a house accumulate the heat in the summer and the cold in the winter. I find it absurd that people have to work all their lives to purchase a home that neither protects them from cold, not from heat.

This brings me to my last point. The slowdown in economy - let’s not forget it’s primary reason, the irresponsible lending banks in the US - was caused by some greedy that wanted too much money for a far too cheap housing (that is if we can still call those structures houses).

My dear home buyers, be wise - a house is very important to your well-being, choose one you can feel safe and comfortable in.

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There were numerous things to take into consideration and we didn’t want to go into it blindfolded so we arranged to meet with several real estate agents to give us a rundown of the process and tips we should take into account for our first home ownership. The advice was different depending on who we were talking to, but soon enough we started noticing that certain things were coming up again and again and made for very good tips. We’ve tried to distill the most important bits of information so people in the same situation as we were can have an easier road to their own property.

1. Set up a Savings Program

This was not such a huge concern for us, as we had taken care to start saving years ago in case such an opportunity presented itself. It is, in any case, an excellent advice especially for young people just starting out. Setting up a savings program will help you save for a deposit on your first home and can be of great help when trying to get a positive credit history. Also, the bigger your deposit is, the smaller the loan will be (which also means less interests to pay!), so it’s a win-win situation.

2. Learn About Grants

As we mentioned previously, the situation is ripe for people wanting to acquire their first home right now, state and federal governments are offering assistance for buyers like you. But the truth is that you need to put a lot of work to make sure you know all the details before taking the leap. Make sure you find out if you are eligible for any grants, what those grants are, how can they be applied, if they have any restrictions and things like that.

3. Banks

Most people in this situation will need to approach a bank, building society or perhaps a mortgage broker to obtain a loan for the money they will need to purchase their first home. The options here are plenty, so it is in your best interest to get all the information that you can before you commit to any partner. Remember, you will be dealing with this institution for quite a long time and you don’t want to feel stuck in a situation just because you didn’t take the time to do some research.

4. Location, Location, Location

It goes without saying, but a vital part of the work is to find out exactly where you want to live! After taking part in an English course Sydney was sponsoring back then, Jen (a friend of ours) decided that since she had been so charmed by the city she would buy herself an apartment there. I was happy to have her close by but I wanted her to take her time and look at other options before deciding. I told her “If you had been on the best English course Brisbane had to offer you would probably want to settle there too. Why don’t you take some time and make sure it’ll be a place you want to spend years living on?” You not only have to think about how the place is or looks like now, but how it will be like 10 or 15 years from now. This can also give you an idea of the potential re-sale value of your home, should you decide to sell it in the future.

5. Get Help

Negotiation is not for the faint of heart. If you don’t feel like you are up to the task, the fears and nervousness could actually cost you quite a bit (in money and time.) Try to find someone in your family or among your friends that is experienced in commerce and can help you with the negotiations.”

What is your relocation story? What would you do differently if you had to do it again?

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It worked and first home buyers began to buy. This explains why there is a major reduction in prices on what’s called “higher end of the market” (expensive suburbs like Brighton, Balwyn and Kew) while the lower end suburbs where properties are priced under 500K (Craigieburn, Ferntree Gully, Thomaston to name a few) show some price growth. But even with all that “artificially created” activity REIV says that the number of sales has dropped by 25%. That means that 25% more people either can’t afford to buy or think that buying now is not a good idea.

This situation makes me wonder - although we don’t know when the interest rates will start climbing up, the boosted FHOG is expiring in June of 2009, in 4 months from now. What’s that going to do for the real estate market? Will first home buyers still be keen to buy? Will the government extend the offer of increased FHOG for another 6 months?

Finally the last bits of useful information: Melbourne median house price for December 2008 is $426,000, median unit price is $365,000 and you can watch the REIV presenting and explaining all the statistics by clicking on the video below.

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Although I have started to search for a house 3 months before the end of my current lease, the time was quickly passing and I just couldn’t find a rental that would agree to have us as tenants. I was applying for 2-3 houses every weekend and all of the agents were rejecting my applications.

Starting to feel a little bit desperate I resorted to several techniques to try and enhance my chances. Suspecting that they were deciding on “first come, first served” bases I started to arrive to inspection with all the necessary documents photocopied so that I only had to fill out the application and then I could submit it on the spot. That didn’t help me one bit and my applications were unsuccessful again and again.

Then I started to offer references from the previous agent to prove that my dog is house trained, well behaved, quiet and won’t be a problem. Again, no luck, and a few more houses were rented to other people.

Out of desperation I started to offer more than the advertised rent. For example, if a house was advertised for $250 a week, I would call the agent and offer $260. I was confident that this technique will work, and was very disappointed when it didn’t.

There were only a couple of weeks left till the end of my current lease when I finally realized that I need to adjust the price range or I will end up living under a bridge. I compromised on the price and on the quality of the house and finally we were able to rent an old house in a poor condition for $280 a week. On top of everything else we had to pay a higher bond because of the dog to cover possible damage to the property.

The house wasn’t so great, but the location was - very close to the tram, and yet in a quiet street, close to the shops, to the market, to cafes and restaurants, walking distance from a shopping centre. Thanks to that we didn’t need to buy a second car, so paying a higher rent was worth it. Let alone the car, the time itself that I saved because of the proximity of the amenities would justify the extra $20 a week.

Moving home this time was more complicated - we had some heavy white goods that wouldn’t fit into our SUV. Being very creative, my partner has bribed his apprentice at work with a six-pack of VB (a popular beer in Victoria) and borrowed his ute (small pick-up truck). This time instead of 2 suitcases we had 2 car-loads of stuff - amazing how much a person accumulates in as little as 6 months!

And here is the bit you were waiting for. Going through this whole ordeal I was learning so much about how the real estate world in Australia works that I just couldn’t help wondering: am I the only one who doesn’t get this system? Am I the only one who needs a vocabulary to read the darn real estate ads? One morning I was riding in a tram on my way to work and decided to document my real estate journey, from a clueless beginner to a confident consumer. This is how Homeiown.com was born. I have chosen the name “Home I Own” because it is the Australian dream, to own a home. I too was dreaming about owning a home and was willing to work very hard to achieve it. For every single step I’ve made in that direction, there is a post right here, in Homeiown.com.

To be continued, come back to read the next part and find out how we bought a house during our second year in Australia.

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