Researching Jargon Buster

Get the word on the words to know as you start to look deeper.

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Get the low-down on boosting your borrowing power from an ING Home Loan Specialist

If you’ve got a handle on your borrowing power and have taken steps to calculate it, your next step might be thinking about how you can take it further. To help you get your boost on, we’ve had a chat with one of our ING Home Loan Specialists, Belinda Webb, about how lenders calculate your borrowing power and a few things you can do to help it grow. Plus, we’ve made a checklist for you to download to help you try every way to boost.

A bird’s-eye view of borrowing power

Hi, Belinda! First things first. Can you give us a simple definition of ‘borrowing power’?

Hi! So, borrowing power is essentially the amount of money that a person can borrow for their home loan, based on their financial situation.

Why is it important? What does it mean to someone who’s looking for their first home?

Your borrowing power helps determine the maximum amount you can borrow from a bank. Knowing that amount helps you find the maximum amount you can pay for your first home – so, the top of your budget, basically. Once you know your borrowing power, you can start looking around for your first home based on a price range that works within your budget.

What do lenders look at to work out your borrowing power, and what can you do to boost these areas?

Borrowing power is basically a calculation of income versus expenses. There are certain things lenders (like us) take into account: such as income and expenses, as well as savings and debts too.

Your savings history gives us a picture of your financial history and provides an indication of whether you’re able to comfortably take on the regular loan repayments. And debts are two-fold: the balance is a liability, and the ongoing payments are an expense. But there are a bunch of things you can do, across your income, expenses, savings and debts, that could help boost your borrowing power.

Does your credit score play a role?

It might come as a surprise, but your credit score won’t affect your borrowing power, although it will determine whether a lender will lend to you in the first place. That said, tidying up your credit score will help to give yourself the best chance of the bank saying ‘yes’ to your loan application. So you might like to do things like paying your loans on time and cancelling or closing any credit cards you don’t use.

Your income

Why is income important?

Income is really important because it’s one side of the income-versus-expenses coin. When it comes to working out your borrowing power and how much a lender may lend to you, a lender needs to make sure your income is adequate to cover all of your living expenses, including your home loan repayments.

Do different types of income affect borrowing power? We’re thinking about things like bonuses, commissions and even rental income from another property, or other investment income.

Yep. If you have different types of income, they may boost your borrowing power further than a base salary alone. Your lender may only take certain types of income into account if you can show evidence that they are regular and consistent.

What can someone do with their income to improve their borrowing power?

One thing you can might be able to do is salary sacrifice for certain costs. For example, if you work for a company that lets you allocate your pay to costs like car repayments that get deducted before tax, this may be a better outcome than paying for the costs from your income after tax. You may need to speak to your employer or an accountant or financial adviser to see if these kinds of arrangements will work for you. – like car payments, for example. If you work for a company that lets you allocate your pay to costs like that before tax gets deducted, consider taking up the offer. It can boost your borrowing power, as you’ll effectively receive more net income. Of course, these kinds of arrangements need to be assessed for your own situation, so it’s a good idea to seek independent tax or financial advice on this.

Your expenses

So, the other side of the coin. Can someone adjust their expenses to boost their borrowing power? How?

Yes, if you adjust your expenses you could boost your borrowing power. But there is a limit. We will always take a minimum level of expenses to reflect a reasonable amount for your anticipated expenses.

To help adjust your expenses, do a budget tracker! Check what comes in and what goes out. Pop these into categories of essentials (for example, health, food and fuel) and non-essentials (like online shopping, eating out and subscriptions). Once that’s all done, you can review what your essentials are and start looking around for better prices. With non-essentials, decide whether you can eliminate what isn’t useful to you, like subscriptions you don’t need or daily takeaway. These all add up. Ask yourself: Is it important? Do I really need it? Doing this kind of audit can show you how much extra you could be saving.

Are there any kinds of expenses we should look extra hard for?

Look for the expenses that creep up, like buying a coffee every day, and try to reduce them. It might be *only* $5, but in a month that is $150. Small but repetitive purchases like these could have as much of an impact as one significant purchase. So, go ahead and cancel regular payments you’re not using, such as forgotten memberships and subscriptions – or choose one streaming service instead of three. Have coffee at home most days, and treat yourself with a coffee out once a week instead.

Your savings

Do savings affect your borrowing power?

Yes, a demonstrated pattern of savings could help to establish your ability to repay debt.

In addition, the higher your deposit, the less you have to borrow and you may be able to avoid paying expenses like Lenders Mortgage Insurance (LMI), which will allow you to use your borrowing power more effectively.

Your debt

How does debt influence borrowing power?

Any amount of debt is a liability that lenders may factor in.

But debt is an expense, as well. It affects your borrowing power because you need to allocate some of your income to pay it off – which means you’ll have less available income to repay your new home loan.

Do different types of debts – like credit cards, or personal loans – affect borrowing power differently?

The short answer is yes. The repayment amount is what generally affects your ability to repay the loan. As an example; if you have a $20,000 personal loan with minimum repayments of $1,000 per month versus a credit card with a limit of $20,000 with minimum repayments of $200 per month, the personal loan would probably reduce your borrowing power more. All debt will reduce your borrowing power, but it’s usually the required monthly repayment amount that’s the main contributor.

How could someone go about reducing their debt to boost their borrowing power? What is most important in the eyes of the lender?

Reduce those unnecessary credit limits – lenders may still take into account a credit card limit whether it has been reached or not.

It may be appropriate to consolidate your debts so you have one repayment instead of multiple repayments. This can help you manage your finances a lot easier. And if you don’t use it, cancel it. We want to see that your existing debt plus any additional loan that we give to you will not cause you financial hardship, and that you have the ability to meet your repayments without putting a strain on your budget.

Keeping your eyes on the prize

Finally, we want people to keep doing the things they love while boosting their borrowing power for their first home. Do you have any general advice to help people do this?

It’s all about balance. Enjoy splashing out on your morning coffee, but maybe not every day. Review your budget and track your spending to ensure that you’re conscious of what money is where – and whether spending it is worth it for you. Short-term sacrifices could be well worth it for the long-term gain of buying your first home. This isn’t to say don’t spend a cent, but just allocate a budget to the little things in life so you can enjoy the big milestone of buying your first home sooner rather than later

How much can you borrow?

Are you ready to discover your borrowing power? Try our ING borrowing power calculator to find out an estimate of where you stand.

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Here’s how a buyer’s agent can help you buy (or find) your first home

They’re the optional extra, but the benefits could be big. Introducing… the buyer’s agent. But what do they do exactly, and why might you consider working with one? We’ve taken a closer look at how a buyer’s agent might fit in with your first home-buying journey so you can make the call. Plus, we’ve asked an actual buyer’s agent, Rich Harvey, CEO and founder of Propertybuyer, to outline how it all works. From briefing them on your must-haves and deal breakers to those final few days before settlement, plus everything in between, here’s what buying your first home with a buyer’s agent could look like.

But first: what role do they play, exactly?

You might think a buyer’s agent is for the investor set, but really they’re for anyone who needs (or wants) a hand. Typically, the services they offer come in different packages and pricing, depending on what a buyer is after. But their business is built on helping the buyer first and foremost.

“A buyer’s agent is someone who works exclusively for the buyer – who helps them search for, appraise and negotiate their ideal property. Whilst the selling agent is on the seller’s side, the buyer’s agent is exclusively on the buyer’s side,” Rich tells us.

And with all that happens when buying a home, a little extra help – even having someone to bounce your ideas off at the earliest stages – could mean a better decision later.

“Buying a property is an emotional rollercoaster. It’s really important you understand your motivation for what you’re buying and why you’re buying,” Rich says.

Briefing and making a strategy

One of the first things a buyer’s agent can help you with is working out what kind of home is right for you.

“The first thing we do is sit you down and define what you’re actually looking for. What are the must-haves versus the nice-to-haves, the deal breakers, and you tell us what your budget is.” Rich says.

So think about this list of what you want – and don’t want – as your brief for the buyer’s agent. This step will help them strategise their search for your ideal property.

Researching extensively

With a clear brief from you in the bag, the next step is matching that brief with potential properties in the neighbourhood you want to live in.

Suburb profiles form the basis of this research. “We give you examples of properties that have sold in the past two to three months within your price range and in the target area that you’re looking,” Rich says.

And this research can go beyond easy-to-find advertised listings. Some buyer’s agents will find private sales and off-market opportunities. So if you’re looking to find out how much a dreamy converted church might cost, even if it’s not on the market, a buyer’s agent can probably find out for you. Plus, the added bonus at this step is that the buyer’s agent will wrangle the real estate agents too.

“Because we’ve been in business for 20-odd years, we have a huge agent database. So we send out your brief to our agent network. We get access to newly listed properties, off-market properties or pre-listed properties,” Rich tells us.

After all their research, the buyer’s agent will give you a shortlist of properties that match your brief to a tee.

Organising inspections

What’s this? A knowledgeable helper to keep you on track and on brief as you visit properties (and stop you being wooed by those carefully curated soft furnishings that weren’t in your brief)? Sounds dreamy, right?

Yep, a buyer’s agent will head along with you to private inspections at convenient times that fit into your schedule. So no more rushing about in the whirlwind of the property-inspection frenzy.

And, if you’re buying from a distance (like from another city or country), they’ll even run a virtual inspection with you. Or if you can’t make that, they will shoot through a report on what they’ve found.

Appraising and negotiating (so you don’t have to!)

Found the property you think you want to go for? This is where the buyer’s agent sprinkles a little more of their magic. First, the appraisal. “We’ll give you a detailed and written report on what the property’s estimated to be worth in today’s market,” Rich says. Getting an accurate, independent estimate on what to pay for a property is critical.”

Then comes the thing that might stress out the steeliest of first-home buyers: the negotiation.

“After the appraisal, the next step is negotiating. This is where a lot of people fail. They think they’re great negotiators, but they actually fall apart when it comes to buying their home because they’re so full of emotion. It’s fear of loss, fear of missing out, and that’s a big problem for a lot of buyers out there,”Rich says. And it’s at this potential slip-up point where a buyer’s agent, who is often professionally trained in negotiation tactics, will have your back.”

“We step in as your negotiator. We attend the auction and bid on your behalf up to a pre-agreed limit. Or if it’s a private treaty negotiation, we simply negotiate on your behalf and attempt to secure the property at the lowest possible price we can. And then if we’ve got acceptance on price, we get onto exchanging contracts,” Rich says.

Managing legal reviews – including building and pest reports

If you’re buying via a private treaty subject to conditions (like a building or pest report) and you’ve made an offer and it has been accepted, now is the time to engage that building and pest inspector and get your solicitor or conveyancer to check all legal requirements. A buyer’s agent can help organise this step, too. “This step is all about completing the due diligence,” says Rich.

Finalising your settlement prep

Now we’re really getting close. You can almost hear the keys in the lock and the front door opening into your new home.

“The last thing we do for you is a pre-settlement inspection. We make sure everything is there and ready for handover,” says Rich.

To a degree, this final step is simply making sure all the settlement dominos are lined up. The buyer’s agent will stay across your settlement and let you know about any issues that arise or help out if you have a question. Then the job is done. You’re settled.

The keys are in your hands and you’re ready to load up that truck and move in (you could ask nicely but your buyer’s agent probably won’t help you with this part).

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Rich lays out how a good buyer’s agent can help smooth every step when you get to the all-important purchasing part.

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Loan specialist

Meet ING Home Loan Specialist, Belinda. Get the 101 on borrowing power, figuring a deposit, and sorting pre-approval.

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Want to buy a first home fixer-upper? Here are some things you should know

Looking for your first home and weighing up all your options? Maybe you’ve got your eyes fixed on a fixer-upper? Great! Before you take one more step towards stepping inside, it’s worth considering the realities of renovations. Hey, it’s nothing scary. But just like all things home-buying, there are a few things to think about before you commit to a particular property. Let’s find out what they are.

It could be an affordable way to build your dream

A fixer-upper might capture your attention for a number of different reasons, but the biggest might be the ‘a’ word: affordability. In the shape of a fixer-upper, you might find a home that will become the perfect place in the future (once you’ve renovated) but for a cheaper outlay now than finding that perfect place that needs no work. So, whether you’re getting started in property wherever you can or choosing a place that has the potential to be a dream home, a fixer-upper could be a cost-effective way to make a short-term start on building long-term dreams. If your budget only allows for an unrenovated version of your ideal place, you can secure it now and work on it over the years, if you’re up for it.

Spotting fixer-upper potential is a bit of a skill

The home you buy to live in will probably be the most valuable asset you’ll ever own. And this asset will play a big role in your financial future. So, while your main focus could be on finding the comfiest, most-stylin’ home that suits you to a tee, it’s financially savvy to not ignore the money side of it too. When it comes to fixer-upper investments, the name of the game is comparing the value of two equivalent properties: one renovated and one unrenovated.

Look at the difference in price. Adding the cost of your potential renovation (you’ll need to have done a fair bit of research into the costs of reno) to the price of the unrenovated place and comparing that to the price of the renovated place will give you a clear picture of whether you’re getting value for money and building yourself a nice little nest egg for your future. But of course, life isn’t an investment transaction, so if you’re happy to pay a little more to make the perfect home, and you can afford it, then who is stopping you?

Consider the time it takes and the emotional tax

Along with making sure the money and investment side of things are all in a good place, it’s a good idea to check in with yourself and see if you’ve got the time and the emotional energy to take on such a project.

The fact is, good things take time, and that goes for renos, too. Things happen. Timeframes can blow out for various reasons, so steel yourself for that. Budgets can come under pressure, so it could be smart to keep a little wiggle room in your figures (and in your expectations). It will be a fair bit of work. Even if you’re as prepared as possible, it will be a rollercoaster: there will be ups, there will be downs, so make sure you’re buckled up and ready to hold on tight. It will be worth it in the end.

Know when to back out

It’s only human to have an emotional response to finding a dream first-home fixer-upper with oodles of potential. Cool warehouse conversion? Stylish art deco delight? Classic heritage home that just needs a bit of work? Be still, our beating hearts. It’s easy to get swept away in how beautiful and liveable the end product could be and ignore some clear warning signs along the way. So, check yourself. How you check yourself is totally up to you, but maybe create a way to make sure you’ve done the numbers, your heart isn’t overruling your head or you’re overlooking clear red flags like potential budget blowouts or insurmountable council hurdles. You could enlist a friend to ask you some hard questions or make yourself a checklist. Having a safety mechanism will help you know when to cool off and look for something else. Don’t sweat it. The right fixer-upper first home for you is out there.

How much can you borrow?

Are you ready to discover your borrowing power? Try our ING borrowing power calculator to find out an estimate of where you stand.

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Got your heart set on a fixer-upper as your first home? Seven expert tips to realise your reno dreams

So you’ve done your research and a fixer-upper feels like the right first home for you. And, you’re 99% sure you’re going to do it. Good on you! The nice news is, you’re not alone. As Belinda Smith of Renovate & Real Estate tells us, these days, many Australian first home buyers like you are choosing fixer-uppers. But along with the joy of making your first home truly your own, there are a couple of things to think about, like juggling all the work, living in while renovating, keeping your energy levels up and – yes, we’re a bank so we’re going to mention money – sticking to budget. To help you get a handle on all that and more, we’ve asked Belinda for her essential tips on all things fixer-upper. Let’s hammer it out!

1. Play by the rules

Research is key, Belinda says. “Walk through as many open inspections as you can to get to know an area well. That way, you’ll know when you have picked a really good property in a really good street.” Then, consider what you’re going to need to do to fix up the property and find out if you’ll be allowed to do it all. “Look really closely at the council regulations, particularly if you’re thinking of doing a structural renovation and will need plans approved.” Generally speaking, you won’t need to submit plans for a cosmetic renovation, like painting the exterior walls or laying new carpet.

“If you’re looking at an apartment, you’ll need strata to review what changes you wish to make,” Belinda tells us. “An engineers report may be necessary if removing or opening up a wall and, when replacing existing flooring, an acoustics certificate with full specifications of the flooring is often requested by strata. These will add time and money to the project.”

It pays to get familiar with the rules from the start. “Simply, the more research you do early on, the fewer surprises you’ll have during the renovation.”

2. Educate yourself before you start

A little (or a lot of) research goes a long way, as Belinda tells us. “It’s important to get educated on what makes a good property and learn the ins and outs of renovation strategies before embarking on a project. There is a lot of money involved, so it’s not a great idea to run a renovation by trial and error. So, get organised. Also, get help. Renovating becomes more fun and much easier when you can count on the advice of someone who has done it before, or you have a community of experienced renovators and happy homeowners cheering you on.”

3. Work out how much money and time to put in

And, it’s important to know your abilities, your skills and your limits. “Renovating your own home while living there removes your time constraints, as there is less rush to get the renovation completed,” Belinda says.

“Only take on the tasks you will enjoy doing, are competent at, and know won’t take too long to do or slow a project down too much. Of course, keep in mind that licensed trades need to be called for electrical and plumbing work.”

On the money side of things, Belinda has a simple guideline to help you consider your budget. “Generally speaking, you could allocate about 10 per cent of the purchase price of the property to the renovation. There are exceptions to that, like factoring in the estimated sales price of the property when it is complete (if you plan to sell later), what your budget allows and, of course, what scale of renovation you’re looking to do.” Keep in mind, not all lenders lend money for all renovations such as a construction loan (for a large scale renovation, extending the home with another room, or making a kitchen bigger for example).

4. Adjust to living in while you’re fixing up

With fixer-uppers, it’s often the case that you’ll need to live in the home while you do the work. Belinda has some advice here. “First, clean the bathrooms and kitchens so they are usable. Then tackle one room at a time. I suggest that the first room to complete is a bedroom, so you have a clean, organised space to rest and enjoy each night. Plus, a bedroom does not take long to renovate. Keep doors shut and seal off rooms with plastic and tape to prevent dust from entering every room. Be mindful of the safety of children in the house, or anyone for that matter, around tradespeople, tools, steps and ladders.”

5. Work productively with builders and tradies

Choosing the right tradie is a smart step, and working on your communication will help, too. “Always check their credentials (things like licences and insurance), and get a sense of the quality of work they have completed before hiring. Don’t rush this. It is important to work with quality tradespeople who are not only capable of doing the job but are also a good personality fit for you. Renovating can involve making a series of quick decisions, so communication is key. Supporting tradespeople so that they can move through your project as smoothly as possible helps, too. So think about things like keeping the worksite organised, ensuring they have easy access to a bathroom and somewhere comfortable and undercover for breaks,” Belinda says.

6. Get advice from agents

It’s true: agents are your allies, as Belinda explains. “It is impossible to be an expert at all things, so there’s nothing wrong with hiring a buyer’s agent who can research and negotiate on the right property on your behalf. At the other end, real estate agents are masters of their craft, too. Both can be very aware of their local area, market demand, buyers’ desires and so on, so they’re great to develop relationships with.”

7. Steel yourself for the physical and emotional journey

Last but not least: get ready for the ride. “It is important to plan, order product in advance and be organised, all to stay on top of the renovation,” Belinda says. “At the same time, it is equally important to not get too wrapped up in it – to not worry about every little detail. You should enjoy the creative process and the outcome, be proud of the final product, reflect back on how the property looked before the renovation and reward yourself for your good work. Ultimately, renovating should not be exhausting. It is important to hire people to share the labour and take some time out when needed. There’s no shame in doing that. In fact, that way you’ll be willing and able to enjoy the ride even more.”

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How to research home loans like a pro

Just as you’d swipe and scroll the web for the perfect new pair of shoes for a night out, it’s in your best interest to do your homework when it comes to home loans, too. After all, you’ll want a lender that suits your lifestyle – and the best way to find the right fit for you is by asking a few key questions.

First, get your head around loan types

When you’re researching lenders, it can help to narrow down what type of home loan will meet your exact personal needs – for example, you might want to compare variable interest loans if you like the idea of not being locked in to a particular home loan product or interest rate. Or maybe a fixed rate is your thing so you know exactly what your repayments will be. You can even get a loan with a combo of the two (called a split loan) for added flexibility. Loan types are not one size fits all and are designed to meet your individual finance goals. So, spend some time reading up on all of the options available and speak to your lender to help answer any questions you might have

Then, ask your lender anything (and everything)

Once you’ve got an idea of what type of loan suits you, it’s time to jump on the phone and ask potential lenders some pointed questions. Gathering all the information you can will help you decide on a home loan – so get your notepad out and fire away.

What is your interest rate and comparison rate?

Interest rates are key when looking at any loan and you should compare the loan’s interest rate and its comparison rate. How is a comparison rate different? Well, a comparison rate helps you work out a closer estimate of the total cost of a particular loan per year. It includes the interest rate and most fees and charges relating to a loan, reduced to a single percentage figure. It does not include government fees and charges and charges that are only charged in certain circumstances (e.g. if you pay off the loan early).

While the comparison rate goes close to showing the true cost of a loan, it still doesn’t quite paint the complete picture. You’ll need to ask your lender about the loan’s features, such as terms and repayment frequency (more on this later).

What are your fees?

The cost of (most) loan fees is included in the comparison rate. But it’s still a good idea to get all of the possible fees down on paper so you know what’s ahead and can budget properly. Different lenders may call these fees different things, but they’ll know what you’re talking about when you ask about the cost of:

• lenders mortgage insurance (LMI) – a one-off fee (or can be paid in instalments if your lender offers the option) that most lenders charge if your deposit is less than 20% of the value of the property (Note: although you pay for LMI, it protects the lender, not you)
• break costs – a fee that may be charged in certain circumstances such as if you exit a fixed-rate home loan before the end of the fixed-rate
• discharge fee – also called the termination fee and may be charged when you pay out your home loan in full
• annual fees – many loans come with ongoing fees, which may be charged every month or year
• establishment fees – some lenders charge an application fee or settlement fee, which may include the legal costs of preparing your home loan documents.

There may be other fees, too. By law, a lender has to tell you about all the expenses linked to a home loan – so ask away.

What extra features do you offer?

Some loans come with extra features that may help you pay off the loan faster or reduce the amount of interest you pay over the life of the loan. These are must-knows, as they can help you come to a final decision.

Ask about things like:

• extra repayments – if you’re in a position to make extra repayments (on top of the minimum repayment amount), this could help you pay off the loan faster
• redraw – if you’ve made extra repayments, this feature lets you, you guessed it, redraw or access those extra repayments if you need the money
• an offset account – this is a transaction account linked to your home loan, and the money in this account reduces the amount of interest payable so you could pay off your loan faster.

There may be extra fees for these features, so make sure you ask about the cost and factor this into your decision, too.

How much can I borrow?

Before you start house hunting, you’ll need to know how much you can borrow. A lender should be able to give you an idea of your borrowing power once you tell them about your financial circumstances like your income, debts, assets and expenses.

How much deposit do I need?

The answer to this one depends on how much you want to borrow and whether you’re prepared to pay LMI. If you’re keen to avoid paying this insurance, lenders like to see at least a 20% deposit (that is, 20% of the value of the property). Or, if you’re happy to wear the cost of LMI, or if you haven’t quite reached 20%, you’ll need to find out from the lender just how low you can go. But remember, the lower the deposit, the higher the cost of LMI.

How long does it take to get a loan?

If you’re getting to the pointy end of the house-hunting process, then you might be keen to know just how quickly you’re going to get your home loan approved. It’s useful to find this out in the early stages too, so you can plan ahead. Some lenders can turn your loan around in weeks, others it could be months.

Do you offer pre-approval?

By going through the pre-approval process, you find out exactly how much you can borrow – which then helps you narrow down your house-hunting options. Ask the lender if they provide formal, written and signed pre-approvals – some lenders offer non-formal versions, which aren’t rock-solid when it’s time to apply for the actual home loan, but they’re good as an indication when you start out. A pre-approval is usually valid for a period of 90 days.

Prepare to answer a few questions yourself

During your chat with a lender, they’ll likely ask a lot of questions back at you, too. So it’s a good idea to have prepared some information about yourself.

Expect to answer questions about:

• your personal life, like partners and kids
• your income
• your debts, including credit card limits
• your monthly expenses (and, yes, this includes things like your Spotify subscription)
• your deposit (and whether you can show that you’ve done the hard yards in saving this yourself).

Get as much of this information as you can ready before you jump on the phone.

Tips to research home loans like a pro

1. Get to know the different types of home loans.
2. Make a list of all the questions you want to ask a lender – then call them up and ask away.
3. Prepare handy answers to the types of questions a lender might ask you in return – such as who you intend to buy with, what your income is and how much you have saved for a deposit.

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