Mortgage Myths and Misconceptions
Over the years we’ve heard many myths and misconceptions about the home buying process. From buying with bad credit to minimum deposit amounts, we’ve put together some of the most commons mortgage myths and misconceptions we’ve heard.
I can’t buy because I'm self-employed
You can asbsolutely get a loan if you’re self-employed. While someone who isn’t self-employed will prove their income with pay slips, you’ll need to go a bit deeper and provide evidence that you’re profitable through things like profit and loss statements, tax returns and business bank statements.
I can’t buy if I've just swapped jobs
Often we’re told that lenders won’t give you a loan if you’ve been at your job for a “short” amount of time. For some “short” means three months, others six, and some it means an entire year. While lenders might prefer a long stint in your current role, it’s not all they’re looking for and it definitely doesn’t mean you should put off finding a loan.
When lenders look into your employment history they’re assessing how much risk there is in giving you a loan. Lenders see stable employment as lower risk, but that doesn’t mean you have to stay in your current job if you’re planning to buy a house. Lenders look at your overall employment history, including career progression, whether you change jobs often, how long you’ve been in your industry, and if you’re employed on a permanent basis. Many lenders won’t see switching jobs as a risk if you’re financially stable, so don’t let a new career opportunity pass you by if you’re househunting.
I need a 20% deposit to buy a house
Many people see 20% as the minimum deposit needed to buy, but you can actually buy with a lower deposit by using Lender’s Mortgage Insurance (LMI). LMI is an insurance to protect the lender if you can’t maintain your payments. It’s an added cost that can be added to your home loan or paid as an upfront fee.
While there are downsides of going down this route, such as a bigger debt and higher repayments, it can be a good option for many people. If you’re looking to buy in an area that is seeing high growth, waiting to save the additional money needed for a 20% deposit may see housing prices rise to more than you would have paid if you had bought using LMI. Your mortgage broker can help you work out which option is better for your circumstances.
I can’t buy if I have a bad credit score
It’s easy to assume that a poor credit history will ruin your chances of being approved for a loan, but it’s not always the case. Low credit is seen as a risk to lenders, but you can reduce that risk by making efforts to reduce your debt, saving a larger deposit and ensuring you have a good debt-to-income ratio before you apply.
There are also lenders available who specialise in bad credit loans. However, these loans may carry a higher interest rate or additional fees or conditions to mitigate the additional risk for the lender. Your mortgage broker can help you understand what loans are available to you. Northwick Funding have access to more than forty lenders, including lenders who specialise in loans for people with low credit.
Fixed rate loans are always better
There are two major benefits for fixed rate loans – you know how much you’ll pay over the fixed term and you won’t pay more if rates rise. However, the second point is a double edged sword as you’ll also be stuck paying a higher amount if rates fall during your fixed rate term. While there’s no guarantee that rates will be cut, the big four banks are predicting between two and five cash rate cuts from the Reserve Bank of Australia (RBA) in 2025. If you’re looking at fixing your interest rate, you might want to wait a little bit longer.
Variable rates can also offer additional benefits, such as offset or redraw facilities, and they’re easier to refinance if you find a better deal with another lender.