A to Z of home buying
A-L | M-Z
The first part of our A to Z of home buying translated many of the terms you’ll come across during your home buying journey. Here, you’ll find the second half of our list of acronyms, unfamiliar terms and ‘bank-speak’.
The minimum deposit required by a bank to borrow for a home. For many lenders, it is 5% of the purchase price. However, be aware that government fees can’t be included in your loan amount, so you’ll need to save for the cost of these yourself.
When you borrow larger amounts of money (like for a car, renovation or a property), the lender will usually require some form of security for the loan. The “security” is their way to get their money back, if you can’t repay the loan. A mortgage is the loan security usually taken over real estate, like land, homes and apartments. If you default on the loan repayments, the lender (also known as the “mortgagee”) has the right to take possession and sell the real estate to get their money back. When a mortgage is taken over a piece of real estate, it is registered or noted on the Certificate of Title to that land. This helps ensure that all parties, namely the seller and the mortgagee, are paid what they’re owed when the property is sold.
The mortgagee is the lender of the money that holds the security or mortgage over a property.
The mortgagor is the borrower who gives a mortgage over their property as security for the loan.
Where the income from an investment property (the rent) is less than the property expenses and loan repayments of the loan used to fund the investment property.
An offset account is a commonly used feature to help home loan borrowers save money on interest. How it works is pretty simple. An offset account is a non-interest earning account where the balance is offset against the balance of your home loan account to reduce the total interest payable. It can be 100% offset or partial. With a 100% offset, if your home loan balance is $330,000 and you have an offset account balance of $30,000, interest will only be charged on $300,000. Some banks allow you to have multiple offset accounts. There can be limits so always read the terms and conditions.
Off the plan
This refers to when you buy a property purely from an architect’s plans and not the finished building. With these, you won’t be able to physically inspect the property, or see the outlook of the property you’re buying. In many cases, a display unit and sample finishes are available for buyers to view.
Owner occupied home loan
This is a specific type of home loan you take out for your principal place of residence. The other type is an investor loan, where you won’t be “occupying” or living in the property as your main residence. When you apply for a home loan, you’ll need to tell the lender whether the property is for owner occupier or investment purposes. And if your situation changes, (e.g. your investment property becomes your main residence) you’re required to advise your lender. This can be to your advantage as owner occupier interest rates are usually lower than investor rates.
Package home loan
Many lenders offer the choice of a basic home loan or a package home loan. As the name suggests, a package loan offers a number of additional benefits, such as a lower interest rate, a free transaction and offset account, a credit card with rewards program, as well as discounts on other financial products, like general and travel insurance. Package home loans usually have an annual fee around $400.
At auction, a property is “passed in” if the highest bid fails to meet the reserve price set by the vendor. In most cases, the highest bidder then has the first option to negotiate with the seller.
A home loan pre-approval confirms how much you can borrow from a lender. It‘s conditional upon the property you want to purchase being acceptable security, and your lender confirming your income and other information provided in your application. Pre-approvals normally last for 90 days to allow you time to search for and put a contract on a property. At the end of the 90 days, if you haven’t found a property yet you can apply to extend the pre-approval.
This is the amount you borrow for your home.
Principal and interest loan
With many home loans, you can choose between two repayment options – principal and interest or interest only. With principal and interest repayments, your repayment includes paying off the original loan balance (principal) and interest accrued. Principal and interest repayments will help you pay off your home loan faster than interest only repayments.
When a property is offered for sale by a seller without using the services of a real estate agent. It means you’ll be negotiating directly with buyers and not paying a commission on the sale to an agent when the property is sold.
Private treaty sale
A private treaty sale is one of the most common ways to sell a property. Here, the seller or vendor sets a price, and buyers can negotiate with them or their agent until an agreeable price is reached. It’s a private negotiation, as potential buyers are unaware what amounts are being offered by others for the property. At auction, potential buyers all know what is being offered.
When you borrow to build a home, you’ll need to have a construction loan that releases progress payments to your builder after the completion of key phases of the build.
Buying a home can feel overwhelming at times and you may have loads of questions buzzing around your head. If you’d like to know the answers, our Great Southern Bank team members will be more than happy to help.
Home loans can take some time to process, do the paperwork and await your settlement date. If you’re wanting to take out a fixed rate loan, a rate lock is an option that helps protect against the risk of interest rates going up before your loan is settled. If interest rates do go up, you’re holding or “locking in” the original lower rate for three months. While some lenders provide this service without a cost, most charge a fee of between $300-$750.
A popular feature among many home owners, a redraw facility lets you make additional repayments (on top of your minimum loan repayments) into your loan account. These extra funds can then be accessed or redrawn from your loan account later if you need them. Available funds for redraw can also be used if you need to have a break from making repayments on your loan – it all depends on how much you have to redraw. Most variable rate home loans offer this option, with some lenders charging a redraw fee for the service.
Once you have a home loan, you may want to review it after a while to see if it’s still working well for you. You may see another lender with a home loan with more features and a lower rate than you currently have, or even a cashback incentive. If you switch to a different lender, it’s called refinancing. It’s a great way to save some money on a better rate or access new features. Just make sure you understand the costs of moving your current loan before you switch.
Most lenders give you the option of making weekly, fortnightly or monthly loan repayments. The more frequent you pay, the more interest you’ll save – since the principal amount that interest is calculated on is being reduced each time a repayment hits your account. Whether it’s weekly or fortnightly, just make sure from a timing perspective you’ll meet the full expected monthly repayment on your contract.
At auctions, this is the set minimum price that is acceptable to a seller. Before the auction, the seller will advise the reserve price to their agent and auctioneer. Once reached, the seller commits to selling the property. If bidding falls short of the reserve price, the seller usually negotiates with the highest bidder to arrive at an agreeable price.
It probably goes without saying but lenders will only lend money if they know they’ll get their money back. So when you borrow large amounts of money, a lender will often want a high value asset, like a property, house or even a car, that can be used as security on the loan until the loan is repaid in full. If the borrower defaults on loan payments and the loan can’t be paid off, the lender has the right to take possession of the asset that secures the loan and sell it to recoup the money they lent.
When you apply for a loan, you’ll hear the term servicing or ability to service your loan. It refers to your ability to repay the loan, and depends on your income, current debt commitments and living expenses. The lender will look at your incomings versus your outgoings to ensure you have enough money to make the loan repayments and pay all your other expenses. They’ll ask about any foreseeable changes to your employment, income or expenses, and also check to see if you have the capacity to maintain loan repayments should interest rates increase.
The big date when documents and money are exchanged, and the transfer of ownership of the property is finalised between the seller and the buyer. More importantly, the buyer can assume possession of the property.
A split loan is the best of both worlds. It’s where the loan is split into two (or more) accounts – one part fixed rate loan, the other variable rate. A split loan provides greater certainty on the fixed rate portion and more flexibility on the variable rate portion. It can be split with any percentage or amount.
This is a tax that’s based on the value or purchase price of the property and charged by your State Government. In some states, properties under a certain value are exempt from stamp duty.
Subject to finance or Finance clause
When you submit your offer to buy a property to the seller, it’s done in a formal contract. The contract needs to clearly state all the conditions of your offer. A standard condition in many contracts is a subject to finance clause, which gives you time (usually with a time limit) to organise a loan for the property you’re buying. It means that if you can’t get finance approval for your loan, you may choose to end the contract and not go through with the purchase.
Switch or variation fee
If you decide to make changes to your home loan, say going from a variable interest rate to a fixed interest rate, you may be charged a switch or variation fee that covers or partially covers the lender's internal processing costs.
The length of your home loan – the average is usually 30 years.
Before you buy a property, your legal firm or conveyancing team will need to review certain records or documents relating to the property being bought at a Land Titles Office or Government Department. This review is known as a title search and confirms ownership of the property, registered easements and other encumbrances (debts owed), or current or future proposals in respect of the land.
Transfer and transfer duty
When ownership of a property is transferred from seller to buyer, these changes are noted on the Certificate of Title and are registered with the Land Titles Office. The transfer confirms a change of ownership. Transfer duty is the fee charged to register that change.
A moment for mild celebration, unconditional approval signals that your loan application has been fully approved and is not subject to any terms and conditions. Loan offer documents will be sent to you for review and signing. Once signed, returned and checked by the lender, your application will be ready for settlement.
The opposite of having encumbrances. Your home is debt free! It’s free of mortgages, encumbrances, covenants or restrictions.
Part of the loan application review process, a lender will commission a valuation report on the property to be used as security for a loan. It will detail the professional valuer’s opinion of the property's value. The bank’s valuation of a property might be different from the amount you pay for it.
Variable interest rate
With a variable interest rate, the rate may fluctuate depending on a number of factors, including the marketplace and the cost to lend money incurred by lenders. If interest rates go up, so will your repayment amount, and if interest rates go down your repayment can also decrease.
Also known as the seller, this is the person or people offering a property for sale.
That thing you yell when you move into your first home.
Where you sign on the contract!Z
The land on which houses and building sit are “zoned” or designated for specific uses by your local authority. Zoning guidelines outline the permitted uses of land and buildings on that land.
When you’re all settled in and have the loan of your dreams you sleep much better.