First-time buyers are often confused by some of the terminology and language used by real estate agents, mortgage brokers and lenders.
When you’re preparing to make one of the biggest purchases in your life, working out all the jargon that goes with property-buying can get overlooked. But it can be the difference when it comes to making a confident decision. .
As a mortgage broker, I work with many first-home buyers and will always take time to explain the process of buying property and the meaning of phrases and words that are not used in everyday life.
To help you navigate your first purchase, here’s a list of common words and phrases and their meanings.
Loan-to-Value Ratio (LVR)
This is the fundamental principle of your mortgage agreement. Usually, a loan will be 80% of the value of your purchase, which is based on the fact that you’ve put down a 20% deposit. So the LVR is 80:20
Lenders Mortgage Insurance (LMI)
If you borrow more than 80%, your lender may ask for this insurance. It can be expensive and protects the bank if you default on your loan but you personally don’t get anything from it. You can minimise the need for LMI if you have a large enough deposit.
Fixed Rates
This term reflects the cost of borrowing money. When your rates are fixed, then the cost of your borrowing is stable and your mortgage repayments will be consistent. When rates are low, many borrowers ask the bank for a fixed rate loan or a loan that has a partially fixed rate.
Variable Rates
The difference with fixed rates is that your payments can go even lower if the cost of borrowing falls further. That’s a win for you. But all coins have two sides: rates can go up, and that hits your cash flow. Talk to your mortgage broker or lender about the best option for your circumstance.
Pre-Approval
Also known as a conditional approval, you’ll come against this phrase when seeking a loan. Seek pre-approval before beginning your property search and then you’ll know how much you can spend. However, the lender won’t release the money until they’ve valued your choice of property.
Private Treaty
You put a pre-determined price on your property and negotiate with anyone who expresses an interest. The popular alternative is to sell at auction.
Reserve Price
At an auction, the owner places a reserve price and is extremely unlikely to sell for less. This benchmark is not stated. However, the auctioneer will use a phrase like, “we’re selling this property today” or “the property is now on the market”, to indicate the reserve has been surpassed and it’s game on.
Conveyancing
Once your bid is accepted, a legal process begins to check issues such as whether the person selling the property owns it, that no loans or guarantees are held against the property, and the boundaries are correctly stated. There are many other issues to sort out, too, and a conveyancer or lawyer will look after these for you.
Exchanging contracts
This represents a pivotal moment in the purchase. Until each party exchanges contracts, the owner doesn’t have to sell to you. As a buyer, you have a short cooling-off period, but the seller does not.
Settlement
The big day arrives. Your solicitor or conveyancer will ensure full payment goes through and you receive the keys to your new home.