Posts Tagged ‘home loan’

85% Home Loans

May 10th, 2011 No Comments
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If you save up a 20% deposit on your home loan, this allows you to avoid needing to pay for lender’s insurance. Unfortunately, this isn’t always a possibility. If you can afford a 15% deposit, however, this is still much better than a 90% or 95% loan.

You can use either a 15% deposit or 15% equity in another property to apply for an 85% home loan. This offers the bank reassurance that, even if you were to foreclose, they would be more likely to break even. In most cases, you can apply for an 85% mortgage for any purpose, whether you will be buying the home for yourself, as an investment or to refinance you loan.

Some lenders will have no limit on the the amount of money that you can “cash out” on, while others will set a limitation of 20% of the value of the loan. Regardless of the lender, you will almost certainly be required to bring documentation explaining what the money will be used for.

If you have saved up a 15% deposit, you have done more than many other borrowers are willing to do. Some banks may try to convince you that you haven’t saved up enough. For this reason, it is a good idea to get in touch with a mortgage broker. In some cases, they may have deals with the lenders that allow you to apply for a mortgage with no lender’s insurance, even though you haven’t saved up the standard 20% deposit. Even if this isn’t possible, a mortgage broker will be able to find the best deal in the shortest amount of time, simplifying the process a great deal.

Lenders also consider “genuine savings” to be an important part of the decision. Genuine savings are the funds that you have saved up in addition to the deposit. In most cases, a lender would prefer that you have saved up at least five percent of the value of the loan. There are some lenders who don’t require this. Once again, a mortgage broker can be helpful in finding these lenders.

That said, whether or not a lender will be willing to work with you shouldn’t be your only consideration. The extra five percent of genuine savings provides you with a buffer that will protect you from any unexpected costs that you might have to deal with. Most financial experts will argue that it is best to keep all of your basis covered. The last thing that you want to deal with after purchasing a home loan is additional debt.

When comparing lenders, it is important to compare not only the interest rate, but the cost of lender’s mortgage insurance. The ultimate questions are how much you will spend each month, and how much the loan costs overall. All other considerations are secondary.

Eligibility

Not everybody is eligible for an 85% home loan, of course. While every bank has it’s own criteria that they use to determine whether or not to offer any particular loan to any particular borrower, here are some of the most common factors that they take into account.

First of all, your credit history will play an important part in the decision. With a 15% deposit, it is not quite as important that you have a completely clear history. It is, however, helpful to have a credit report free of any seriously negative decisions. Ideally, you will have made all of your payments on time for the past six months, including rent, credit cards, and other loans. This is especially important if you hope to avoid paying for lender’s insurance.

In most cases, the lender will also prefer that you have at least six months of employment with your current employer. This is not always a necessity, but it can make the application process more difficult if you don’t meet this requirement.

Your income is especially important. Your income is the source of the funds that you will be using to pay off the debt to your lender, and many banks consider it to be the most important factor of all. The higher your income in comparison to the cost of the loan, the better. Simply earning enough money to pay off the loan isn’t enough. Banks feel more comfortable if you will have extra funds leftover. Generally, it is a better idea to choose this type of loan anyway, as it is much less stressful to pay off, and provides you with the extra money that you need in order to enjoy yourself.

Banks will also consider your assets and your savings. They will often compare your current savings and assets to other people in your age. They feel that this says something about your reliability as a borrower. The more assets you have accumulated, and the more savings you have put away, the more responsible they feel you are as a borrower.

Apply for an 85% home loan.

Home Loans With A 457 Visa

April 27th, 2011 1 Comment
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If you are classified as a temporary resident of Australia with a 457 visa, there are certain obstacles that you may face which can make applying for a mortgage more difficult. Buying a home is never a simple process, and it certainly doesn’t get any easier if you are considered a foreign citizen. That said, a more complicated application process shouldn’t be enough to discourage anybody from buying a home, which is one of the most rewarding financial decisions that you will make in a lifetime.

Deposit

The first obstacle that you are likely to face is the deposit. Many Australian citizens can apply for a loan with a small deposit, or no deposit to speak of. If you are staying in the country on a skilled workers visa, this typically is not an option, In most cases, you will be required to make a deposit worth 20% of the value of the home. For a $200,000 home, this would be $40,000.

The expenses associated with buying a new home amount to about 5%, so it is generally a good idea to save up about 25%. In the example above, the extra 5% would be $10,000, bringing the total that you should save up to $50,000.

While this obstacle may be frustrating, it may actually be for the best in the long run. Those who have the opportunity to apply for a mortgage with a smaller or nonexistent deposit will also pay a higher interest rate, and be required to pay for the lender’s insurance that the bank needs to protect itself against the threat of foreclosure.

If you have been working at your current job for more than a year, it may be possible in some circumstances for you to apply for a mortgage with only a 10% deposit. You will typically need to work with a mortgage broker who offers this type of deal in order to qualify.

Options

Not all lenders will be willing to work with somebody who is in the country on a 457 mortgage. Many banks consider you to be too high a risk. Fortunately, the banks that are willing to work with you will tend to treat you the same way that they would treat a citizen. As mentioned above, their will often be limitations on the size of your deposit, but beyond that the interest rates and terms of the home loan should be essentially the same.

Since it can be somewhat difficult to find these lenders, it is a good idea to get in touch with a mortgage broker. Brokers have contacts in the lending industry, and know exactly which banks are willing to work with you and your situation. This saves you the time that it would take to shop around and find a lender that is willing to work with you. Brokers also know which lenders offer the best interest rates. There are even some brokers available who specialize in working with immigrants and temporary residents, which helps the process run even more smoothly.

Government Involvement

Another thing to be aware of is the Foreign Investment Review Board, known as FIRB. Since you are not a resident of Australia, you need to apply for approval from FIRB. This may sound somewhat concerning, but rest assured that nearly all applications are approved. Still, it is worth understanding the involvement of this government organization.

To begin, you are not prohibited from purchasing either old or new property, as long as you plan to live in the property yourself. If you leave the country, you will be required to sell the home. If the property is old, you can’t buy it unless you are going to live in it.

Another thing to keep in mind is that your own personal financial situation has no bearing on FIRB approval. The board only considers your residency status and the type of property you are considering buying.

The process of applying for approval from the board is relatively simple. The form is only about three pages in length. As long as you are buying the home for your own personal use, and not as an investment, you shouldn’t have any problems. If you are buying the property for investment, you still won’t tend to have problems as long as the property is new.

Can You Receive a Grant?

In most cases, you will not be eligible to apply for the First Home Owner’s Grant (FHOG) unless you are an Australian citizen or permanent resident. There may be an exception if you are buying a home with somebody who is a resident or citizen.

Learn more about 457 visas.

Financial Management In Australia

April 23rd, 2011 No Comments
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The Australian banking system works in much the same way as the banking system in other industrialized nations throughout the world. It is easy to get in touch with representatives of the bank, and in most cases the banks are used to working with immigrants who do not speak English.

Concerns You May Be Facing

If you are the type of person who spends a great deal of their time moving from one location to another across the globe, or if you are moving to the country, you have many different things that you need to keep track of. Not only do you need to physically relocate your possessions and find a place to live, you also need to deal with bureaucratic issues such as making sure that your visa is in working order.

In addition to all of these concerns, it is also important to make sure that your financial situation is properly taken care of. This covers everything from opening an Australian bank account to ensuring that all of your payments are made on time. Thankfully, the Australian banking industry can help simplify this process and alleviate some of the stress that you might be going through.

The Australian Banking Industry

The banking industry in Australia is one of the most reliable in the world. In fact, the World Economic Forum has rated the Australian banking system second place compared to any other banking system in the world. In addition to bank accounts, banks in Australia offer a wide range of wealth management services. Products that they offer include loans for personal, business, and mortgage purposes. Insurance, investments, credit cards, and financial planning services are also available.

Many of the banks in the country can help you set up your accounts, credit cards, and other financial products even before you move into the country, which makes the process a great deal simpler.

In addition to this, there are international banking teams that you can take advantage of, providing you with access to a staff that can speak a wide variety of languages.

Checking Account

The first place that you will want to start when you move to the country is a simple everyday checking account that you can use for day-to-day transactions like paychecks and grocery shopping. There are several things that you will need to think about before you choose to set up an account.

The first thing that you should look for is a bank that is part of a strong network. The availability of the bank should be widespread so that you will be able to access your account no matter where in Australia you are located. At the very least, you will want access to ATMs that will give you access to your account without needing to pay a fee. Australia is not a small country, so the importance of a national chain should not be understated.

It is also a good idea to deal with a bank that you have access to twenty four hours a day, at least online. Do your research and find out if their telephone and website systems are convenient, easy to use, and offer a wide variety of services. The more you can do with an online system, the more time you can save. This advantage is twofold, because a bank with good automated systems also has more time available for its customers who need to speak with a human being.

Never sign up for a bank account without understanding its fee structure. You might be charged for certain types of transactions, for not having enough money in the account, for over-drafting, or even simply for having an account with the bank. Take a close look at the way you use your bank account before you agree to any fee structure.

Savings Accounts

If you have additional funds that you want to protect from the effects of inflation, it is also a good idea to sign up for a savings account, a certificate of deposit, or a similar financial package. Banks earn money by lending out their customer’s funds in exchange for earned interest. If you open up a savings account, you can earn some of this interest yourself. Be sure to find out what the withdrawal limits and fees are before signing up.

Credit Cards

It is a good idea to have a credit card on hand in order to make emergency payments that you can’t otherwise afford, or to build up your credit rating. Banks in Australia offer the same major credit cards that are available in most countries throughout the world, including MasterCard, Visa, and American Express. They also provide new “contactless” cards, which make it possible for you to buy inexpensive items without needing to enter a PIN number or leave a signature.

Of course, if you are planning to make a larger purchase, it is usually a better idea to take out a loan instead. The interest rates are lower, meaning that the costs are also lower in the long run. If you have enough evidence that you will be able to pay off your loan, there are some banks that will approve you on the same day that you apply.

If you are a new migrant to Australia then you should seek the help of a professional mortgage broker before you take on the commitment of a loan. Borrowing money in a new country is an entirely new ball game, so you need to get advice to avoid making any mistakes.

Family Pledge Mortgages

April 22nd, 2011 2 Comments
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If your financial history does not allow you to receive approval for a home loan on your own, you might have more luck if you take advantage of the power of family pledge mortgages. This is when a family member agrees to offer support for your loan by putting up equity in their own property or providing income assistance. This can also be beneficial for people who want to apply for a loan on a home that is too expensive for them to apply for under normal circumstances.

Reasons Why You Might Want to Apply

  • If you have children who are buying a home, they may be limited in the size of a loan that they can apply for. This could be because of their income, or it might be because of the size of their deposit. Relatively small deposits also mean higher interest rates and lender’s insurance.
  • You may want to help your children buy a property now, rather than forcing them to wait until they can save up a large enough deposit.
  • You may have children who don’t have enough money to buy an expensive home now, but they are in a field where it makes sense to think that their income will continue to grow.

Equity Support

Equity support is the most popular form of family pledge mortgage. Under this model, you take advantage of the equity that you have placed into your own home as a form of security. This makes it possible for the family member to buy property of their own.

When somebody takes out a loan with a deposit smaller than 20% of the value of the home, the borrower is usually required to pay for lender’s insurance. The cost of lender’s insurance can be very high, and dramatically reduces the amount of funds available each month for other purposes.

If a borrower has a small deposit, or no deposit at all, a family member can dramatically improve the situation by making a family pledge. In this case, the borrower only applies for an 80% mortgage for the new home. The family member then secures the rest of the value of the home using the equity in their own property.

This process has several benefits. First of all, it is much simpler for the bank to approve the application. This is because the bank only needs to approve the loan internally. It does not need to contact their lender insurer to see if they also approve the loan. The monthly costs are also much lower, since the borrower is not required to pay for this insurance.

In most cases, the person making the pledge will only be responsible for the 20%. They typically are not held liable for the rest of the loan, so the risks are relatively low for them.

It is also worth pointing out that there is no reason that the equity has to come from a family home, although this is the most common type of pledge. It could also be an investment property. All that matters is that the property is owned by the person making the pledge.

A family pledge can be removed when the remaining principle of the loan is less than 80%. This can be because the value of the property increased, because this part of the balance was paid off, or both.

Income Support

This type of pledge is less common because it requires the person who is making the pledge to make themselves liable for the entire amount of the loan. If the borrower’s income is not high enough for the lender to offer them a loan, you can pledge that you will provide your own income to help pay for the loan if necessary. The downside of this is that if they fail to make payments on the loan, you are held 100% liable to make the payments.

While this is significantly different from equity support, both types of pledge can be made at the same time. Equity support can be used to cover the deposit, while income support can be used to increase the overall size of the loan.

An income support pledge can be removed once the other borrower can demonstrate that they are earning enough income to pay for the loan on their own.

Learn more about family pledge mortgages.

Low Doc Loans: 80% LVR

April 20th, 2011 1 Comment
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When you decide to purchase a piece of property, either as a residence or for financial investment purposes, you will most likely need to apply for a loan. Before you will be granted a loan, the bank will want to be certain that you have the ability to make the repayments. This typically requires you to produce tax documents and check stubs, but not everyone can do this.

Applying for mortgages can be an intimidating process, especially if you don’t have the documentation usually required by lenders. There are a lot of different types of loans available, but many of them aren’t accessible to individuals with little or no proof of income, such as those that are self-employed or work as independent contractors. However, there is an option available: the low doc home loan.

A low doc loan, also referred to as a low documentation loan, is a home loan in which the paperwork used in standard loans is not required. This type of loan is perfect for self-employed borrowers that don’t have the proof of income papers typically used in applications for standard loans. Generally, lenders of low doc loans will ask the applicant to provide some proof of income, such as recent bank statements. In addition, low doc home loans are only available for loan to ratio values up to 80%.

Lenders offering 80% low doc home loans may have varying requirements, however most lenders ask that the borrower meet the following basic criteria:

1. You have been self-employed for at least one year in the country of Australia.
2. You have had an ABN number for at least one year.

The idea behind these criteria is to make sure that the borrower has a steady source of income and can afford to make the repayments. Other requirements may also apply depending on the lender. However, understanding these other requirements can be tricky. The requirements for low doc loans with high loan to value ratios, usually between 60% and 80%, are fairly confusing. Below, you will find the details of some typical low doc loan situations.

Issue A:
Refinancing a loan without sufficient business activity statements, or BAS statements.

One option for solving this problem is to acquire a loan with a loan to value ratio between 60% and 70%. Loans for a loan to value ratio of up to 70% can be acquired from one of the major providers without trading statements or BAS statements. Instead, the applicant needs only provide a letter from an accountant confirming that the loan is affordable. In addition, there is no mortgage insurance is required. Some other providers may also provide low doc loans up to 70% loan to value ratio, but the qualifications are stricter.

Another option would be to acquire a loan for a loan to value ratio between 70% and 75%. This type of loan can be obtained through a regional bank with certain requirements. The applicant must have been GST registered for more than 2 years for a loan to value ratio of 75%, but only for one year if the loan to value ratio is 70% or less. This loan is only available if you will remain under $1,500,000 in total loans, including those you may have from other lenders. Not available to developers, primary producers, or builders.

The third solution is to look for a loan with a loan to value ratio between 75% and 80%. Though it is possible to find a loan of this type from providers who won’t ask for BAS statements, the rates and fees will likely be higher than for other loans. In addition, it is not easy to find lenders that will consider cash out loans.

Issue B:
Purchasing a home at 80% loan to value ratio without BAS statements.

In this case, you can get a loan from a non-bank lender, a second tier bank, regional bank, or even a major bank. You will need GST registration and ABN for one year or more. Fees and rate will be comparable among lending institutions.

Issue C:
Obtaining a loan when your exposure is too high with your current lender.

To solve this problem, you will need to engage in debt consolidation and then spread your loans out over several lending institutions so that you meet all of the requirements of each institution. In doing this, it will give you the ability to take out another loan.

Whether you are applying for home loans or personal loans, there are options available for getting the money you need. If you don’t fall under any of the aforementioned circumstances or if you have bad credit, you could also consider using a guarantor to increase your borrowing ability. A guarantor is someone that agrees to be responsible for your loan should you default on it. The guarantor’s assets will be taken into consideration when you apply, which can dramatically increase the amount of money for which you are eligible.

Learn more about low doc loans.

Commission Income Mortgages

April 14th, 2011 3 Comments
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If a large percentage of your income comes from commission, you may need to apply for a commission income mortgage. This is when the lender marks down funds that you earn from commission or bonuses as a source of income that you will be using to pay for their mortgages. Considering the financial environment, it’s not surprising that the bank considers this a risky source of annual income.

Since funds earned on commission are less likely to remain steady, banks often require a definitive paper trail to assure them that the cash flow will continue. Mainly, they want to know that you have a sustainable source of income.

If a significant amount of your income comes from commission or bonuses, it is especially helpful to get in touch with a mortgage broker. Since they have contacts in the underwriting industry, they are capable of discussing your financial situation with them directly. This means that you won’t have to bother filling out a home loan application with a lender that would never consider working with you. It also means that it will take significantly less time to find one who will.

Because of the fact that a mortgage broker knows its lenders requirements, they are able to quickly identify which bank is ideal for you after collecting your financial information. Some lenders are best suited for high income borrowers with a good credit history. Others are better suited for people who have had a less than stellar financial performance in the past, and may not have as reliable a source of income.

A broker can collect all of your financial information up front. You won’t be forced to fill out an endless barrage of paperwork. Once the broker has your information, they can typically move forward from there without requiring any additional financial information.

Many brokers will continue to work with you even after your first mortgage. They will stay updated on your financial situation, and continue to monitor the lending industry for opportunities to refinance your home loan and get an even better deal.

Why are Lenders Concerned about Commission Income?

Throughout Australia, salesmen who earn a large portion of their income through commission are turned down for home loans even if their financial situation is robust. Many banks won’t even consider dealing with somebody with a commission based income. Those who are willing to work with you will most likely want two years of documentation to demonstrate the stability of your income.

Banks prefer not to work with people who are paid based on commission because the amount of money you earn each month can vary quite dramatically, and it isn’t guaranteed. People who earn a regular salary are considered more reliable.

This is not necessarily fair. There is no such thing as a “guaranteed income” after all, because even people with a regular salary can lose employment. Regardless, this is the logic used by many lenders.

The good news is that not all lenders approach the subject the same way. There are some lenders who are willing to offer a relatively competitive home loan with as little as three months of income paperwork. Working with a broker is still highly recommended, since banks who are more liberal with who they are willing to lend to often have less than ideal interest rates and terms.

Why Some Lenders Consider Commission Income Differently

Not all banks or lenders approach commission income with the risk-averse logic described above. There are many reasons to think of a salesman who earns this type of income to be very low risk. One of the most important factors is the simple fact that you can always work harder in order to earn more. The need to pay off a mortgage is also one of the strongest motivations to work harder.

Since you are only paid significantly when you make a sale, commission based earners are viewed differently from standard employees. The more they pay you, the more money they are earning. This means that people who work on commission are rarely thought of as an “expense” the same way that most employees are. When economic conditions get worse, commission based earners are less likely to be laid off than standard employees.

Finally, most people who work on commission are very financially stable. They have a keen understanding of the way that money works, and are less likely to spend money that they don’t have.

Information You Might Need

Every lender has a different application process, but many of them require similar information. To begin with, most will require documentation of your two most recent paychecks. These need to include your total income for the year, which can be used to extrapolate your annual income.

If the payslip does not include this information, you will likely be asked to provide additional income like a tax return, a letter from the people you work for, and evidence of your sales performance over a period lasting at least three months.

Many lenders will also require at least two years of tax returns and a letter from your employer demonstrating consistent income.

Find more information about commission income mortgages.

Benefits Of Using Mortgage Brokers

April 14th, 2011 No Comments
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A couple using a mortgage brokerMortgage brokers play an important part in the success or failure of the economy. They facilitate the sale of mortgage loans, and make it easier for borrowers to find the best deal on a home loan. You can think of your broker as the middle man between you and your lender. Since it is less than easy to find the right lender for the right price, it is in your best interests to take advantage of the broker’s intimate knowledge on the subject.

The broker typically has access to contacts in the lending industry, either within a specific territory or throughout Australia. This makes it easier for them to find a good deal on a mortgage. They save you a great deal of time, and often money, in the process.

Brokers don’t work for the lending industry directly, but their clients make up a large percentage of the people who apply. Over a third of home loans in Australia involve a broker. When you take into account the fact that the industry has only existed in the country since the 1980s, this is quite an achievement.

Despite their name, a mortgage broker can also be helpful in finding a personal loan or business loan, or refinancing current loans. Many of them are now available online, allowing them to work with more clients at the same time.

Benefits of Mortgage Brokers

- You can find cheaper interest rates. The fact that the broker can negotiate on your behalf, that they have contacts throughout the industry, and that they know what type of loan suits your financial situation means that they can offer you a better deal than if you were to deal with lenders directly.

- Do we need to say it again? Brokers have contacts that you don’t. End of story.

- Brokers have exploded in popularity over the last several decades for a good reason. You get more flexibility out of a broker than you get out of any particular lender. When you are dealing with a broker, it is not unlike dealing with all possible lenders at once.

- Unlike the bank, the broker doesn’t care if you have a terrible credit record. A broker is on your side. Since your financial history is of no risk o them, they will work with you regardless of your past. They will do what they can to get you in touch with a reputable lender willing to work with you, something that is incredibly difficult to do on your own.

- Efficiency is key here. You save time, money, and effort. Best of all, from you perspective, the mortgage broker is usually free. There may be fees from time to time, but in most cases the broker is paid by the lender, meaning that your only expenses will be for the loan itself.

In Review

A mortgage broker is your representative in the world of mortgage lending. They know people in the industry, they can act on your behalf, and they can save you time and money that simply isn’t worth wasting.

Temporary resident mortgage

February 20th, 2011 5 Comments
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Have you recently arrived in Australia and are looking to purchase your own home?

New residents of australiaYou may be disheartened by financial institutions that keep turning you down. The simple reality is that many banks see you as a higher risk because you are not as financially committed to staying in the country as an Australian Citizen or Permanent Resident. However not every lender has strict lending policies for foreign citizens living in Australia.

With the right expert advice your dream can actually become your reality! The trick is to speak to a mortgage broker such as The Home Loan Experts, who specialises in temporary resident mortgages, and knows which lenders will approve your loan.

Getting a Pre Approval

A Pre Approval is free! So why not approach a mortgage broker to see if you will qualify for a mortgage in Australia?

Once you have a Pre Approval you can start looking for a property to purchase that you can call home.
There is nothing more discouraging than finding that perfect place and then discovering that you are not able to get a home loan or you are not able to borrow as much as you thought. By sorting out your finances up front you will be free to shop for a property at your leisure.

Do I need FIRB approval to qualify for a mortgage?

Yes, you will have to obtain approval from the Foreign Investment Review Board (FIRB) to acquire formal approval for a mortgage. We recommend you seek FIBR approval at the same time as applying with a mortgage broker for pre approval of your mortgage.

Just like with your home loan, you can get pre approval from the FIRB to buy a property. Please note that as a temporary resident there will be restrictions placed on your purchase. For example if you decide to move back overseas then you may be required to sell the property.

If you are purchasing with an Australian Citizen and you hold either a Partner Temporary Visa (820/801), Partner Visa (826/814), Interdependency/Provisional Visa (310/110), Partner Visa-Temporary/Offshore Visa (309/100) then with some banks their standard lending policy will apply. In this case a loan for 95% LVR (95% of the purchase price) is available and FIRB approval is not required.

However if you are not buying with an Australian Citizen or Permanent Resident then lenders may restrict the amount you can borrow because you have less commitment to stay in the country. The most common type of temporary residents that buy a home in Australia on their own are 457 visa holders. For more information please refer to the Temporary Business (Long Stay) page on the Home Loan Experts website.

What happens next?

Once you have found a property that you would like to purchase, and FIRB approval has been granted, you can then make an offer to purchase the property. After your offer is accepted then you will obtain final loan approval, final FIRB approval and will complete your strata (if required), pest and building inspection. The property will normally transfer into your name around six weeks after you sign the contract, depending on which state you are buying in.

Although the process of buying a home can be a little frightening when you are in a new country, you will find the final result is worth the effort. Your conveyancer and mortgage broker will work together to ensure the process is as simple and stress free as possible.