Top 25 Insurance Companies

Below you'll find a list of the largest U.S. property and casualty insurers as measured by net premiums written and reported by A.M. Best.

Ranking	Insurance Company	Net Premiums Written
1	State Farm Group	$50,808,635
2	Allstate Insurance Group	$24,796,256
3	Liberty Mutual Insurance Cos.	$21,483,996
4	Berkshire Hathaway Insurance (includes Geico)	$21,358316
5	Travelers Group	$20,594,458
6	American International Group	$19,687,720
7	Nationwide Group	$14,489,531
8	Progressive Insurance Group	$14,476,676
9	Farmers Insurance Group	$14,129,512
10	USAA Group	$10,679,414
11	Hartford Insurance Group	$9,688,760
12	Chubb Group of Insurance Cos.	$8,927,736
13	CNA Insurance Cos.	$6,188,618
14	American Familiy Insurance Group	$5,324, 290
15	Aliianz of America	$4,666,301
16	Auto-Owners Insurance Group	$4,485,442
17	Munich-American Holding Corp.	$4,413,834
18	Zurich Finanical Services NA Group	$4,400,123
19	Erie Insurance Group	$4,019,273
20	Ace INA Group	$3,705,475
21	Transatlantic Holdings Inc. Group	$3,408,020
22	W.R. Berkley Group	$3,392,330
23	The Hanover Insurance Group Property & Casualty Cos.	$3,053,508
24	MetLife Auto and Home Group	$2,983,236
25	Cincinnati Insurance Cos.	$2,965,462

Understand Your Credit

Thinking about buying a house? Then think about your credit history...the folks who lend money do!

How well you have handled your credit obligations in the past is of utmost importance to lenders today. The good news is that this information, for the most part, is available to you.

Your credit history is maintained by three different private companies called credit reporting agencies: Equifax, TransUnion and Experian. You can order your report by phone and charge it to your major credit card if you like. It usually takes about a week to arrive. Or you can order your report online and view it within seconds.

It's a good idea to get a copy of all three reports, because if an error exists on even one of the reports, it may negatively affect your chances of getting the loan you want. Your credit report lists all the consumer credit that has been extended to you over the past seven years. It will show what your highest balance has been and what your current balance was on the date last reported by the creditor. It will also show how many payments you made on time and how many late payments were late. Late payments are grouped into categories showing how late you were. For example, if your credit card payment was over 30 days late one time, it might not be considered too serious. But if payments were over 60 days late four times, over 120 days late two times and over 180 days late one time, you have had a serious problem. That problem is going to impact your ability to borrow money.

It just makes sense to find out about your credit and correct any errors now. Regardless of how many credit problems you have had in the past, there are two good points to remember.

First, negative credit information can be reported in your credit file for only seven years. After that, it drops out and cannot even be considered. The one exception is bankruptcy, which can be reported for 10 years. But after that you start with essentially a clean slate.

Second, lenders are much more concerned about how you have handled your credit recently than with what happened several years ago. Even if you have had a bankruptcy, if you have kept your nose clean and paid your bills on time since then, it is possible you could qualify for a loan after as little as two or three years.

One of the best developments in the world of lending has been risk-based pricing. That's a five dollar term for the ability of lenders to offer higher priced loans to borrowers based on their demonstrated ability to repay. In other words, even if you have slightly fractured credit, you can still likely get a loan. It just may cost you a little more.

Copyright © by Move, Inc.

Repairing Bad Credit: Three Essential Steps to Take

Having bad credit is scary and disheartening, especially if you are trying to buy a home, but it doesn’t have to be a life sentence. Many credit problems can be fixed with time and diligence.  When trying to repair your credit it can be tempting to want to opt for a quick fix but the best approach is often a reasonable and methodical one. The good news is that in many cases you can repair your credit on your own.

Assess the Situation

You don’t know what you need to fix until you assess the situation.  Visithttp://www.annualcreditreport.com/ and obtain your credit score. This will alert you to any potential problems you may not be aware of. You can request your credit report once every 12 months from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion. This will keep you apprised of any situations you may need to resolve and verify that no one else has used your identity to obtain credit.

If you find inaccuracies, the Federal Trade Commission advises that you tell the credit reporting company in writing about the inaccuracies. The FTC recommends sending a letter with copies of documents that support your position and requesting that items be removed or corrected. The credit reporting companies must investigate the claim and give you the results in writing as well as a free copy of your report if there has been a change. If you request it the reporting company can also send an updated report to anyone who received it during the past six months (or the past two years for employment purposes). You can also follow up with the creditor in the same manner, providing copies of documents that prove your position.  If the investigation doesn’t resolve the dispute you can request that the credit reporting agency include a statement of the dispute in your file and in future reports.

Pay Your Debts And Renegotiate As Needed

Nothing delights banks and finance companies more than regular, incremental payments.  If you owe more than you can reasonably pay off over time or your monthly obligation is unaffordable then it may be time to negotiate with your creditors. Creditors would rather have some payment than none at all. You may be able to negotiate partial payment of your debt. Lenders do not have a negative view of partial payment settlements because that shows that a debtor took responsibility for bad credit repair. Once your bills have been straightened out, close all unused credit accounts and keep only a couple of cards to re-establish yourself in lenders’ eyes as a responsible credit user.

Use Your Credit Cards but Keep Balances Low

Having a lot of credit cards with outstanding balances can work against you and having inactive cards is also not advised. The best policy is to consolidate and have a couple of cards that you use and pay off regularly. Carrying a small amount of debt on a credit card with a large limit can work to your advantage because it shows that you can handle credit responsibilities appropriately. It’s a good way to build up your credit score. If you cannot get credit cards you could use secured credit cards to help repair your credit. You pay the credit card company up front and each time you use the card, you’ll tap into the available funds and further your credit repair.

The most important thing is to make sure you pay your bills on time each month. Consistency is key. When it comes to credit repair the most important thing you can do is just keep working at it especially if you are looking for a home.  -Interview mortgage brokers and obtain recommendations on them to find the one that works best with you, advises Lee Dworshak of  Keller William LA Harbor Realty. “Work with them on improving your credit. You’d be surprised on how much progress you can make in a short period of time. Once your credit is established, your new mortgage broker will be able to show you an entire suite of loan options.”

John Adams contributed to this article.

First home buyers checklists

From a purchaser’s point of view, settlement is the day that they get the keys to the property – however, in reality, it’s much more than this.

Settlement is the day when you, the purchaser, instruct your solicitor to hand over the balance of the purchase monies to the vendor’s solicitor, and your lawyer authorises, on your instructions, the release of the deposit to the vendor.
In return, the vendor’s solicitor hands over to your solicitor the title deeds and documents transferring title to you and arranges for the keys to be released to you. If you have arranged a loan to assist you with your purchase, then your solicitor will also hand over the title deeds to the lender’s solicitor as security for your mortgage.

Issues can arise around settlement, so take note of the following checklist to minimise the potential for trouble.

1 Confirm details

You, as the purchaser, should confirm the date, time and venue for settlement of your purchase. Normally, you would not attend settlement. On the morning of settlement, check the property to confirm that it is in the same condition that you saw it before exchange of contract. You may also take any cheques required for settlement to your solicitor, or you can arrange to deliver these the day before.

2 Settlement statement

You should receive a settlement statement from your solicitor just prior to settlement, showing the funds required for settlement, for your approval. Sometimes it is difficult for your solicitor to give this information to you early, because they are still waiting to receive information from the vendor’s solicitor, who is in turn waiting on receiving it from the seller’s lender.

3 Council rates

The settlement sheet will usually show the adjustment for local council rates. Rates are adjusted between the vendor and purchaser, as at the date of settlement; usually, the rates owing to the council are paid in full from the vendor’s money, and the purchaser’s share is refunded to the vendor by means of an addition to the purchase price. Your solicitor is likely to follow the usual process so that the local council will be notified that the purchaser is the new owner.

4 Water/sewer charges

In metropolitan Sydney (Sydney Water) and in regional areas (local council) relevant bodies make a charge for water and sewer availability and for water usage; check for your state. The water rates usually run quarterly and, on settlement, will generally be paid to the end of the current quarter by the vendor.

These charges are adjusted between vendor and purchaser as at the settlement date. You will only pay rates and charges for the time after you complete your purchase, or after the time agreed with the vendor.

5 Strata levies

This only applies where the property is a strata property, such as an apartment or townhouse. Usually, the strata levies run quarterly and, on settlement of your purchase, will be paid to the end of the current quarterly levy period by the vendor. After settlement, the Owners’ Corporation should write to you and advise you of the strata levies payable. You may instruct your solicitor before settlement to obtain an original certificate of currency of the owners’ corporation insurance, so you can confirm from your strata report that the building is insured. Sometimes, your lender may require evidence of the insurance being in place and will want their interest as mortgagee to be noted.

6 Registration fee

Where applicable, the vendor will allow you a credit for any registration fee that must be paid to the Land Titles Office for the removal of the vendor’s mortgage or other dealings from the title. Your solicitor may discuss with you any dealings that need to be removed.

7 Money required

for settlement If you have cash – usually funds in a lender account at call – for the purchase of your property, and you do not have a loan, then you will have to arrange for bank cheques (not personal cheques) for settlement. Alternatively, you may have cleared funds in an account from which your lender can, and has prior authority to, draw them from. If you have arranged a loan, your solicitor will usually arrange for your lender to deliver the cheques available from the proceeds of the loan to settlement.

You will usually need to let your solicitor have the lender cheques on the business day before the appointed settlement date; if there is a spelling mistake in the name or an error in the amount of the cheque that you prepare, settlement may be delayed and you could incur interest under the contract, and a host of additional fees and charges for late settlement.

8 Direction for payment

The vendor can determine how the balance of the purchase price must be paid on settlement, and this is normally done by directions for payment. For example, the vendor can ask you to provide cheques to pay the rates owing, to pay legal bills, to pay off a mortgage – but the money comes from the vendor’s sale proceeds, not out of your pocket.

9 Solicitor’s fees

You are likely to receive your solicitor’s tax invoice prepared in advance for the date of settlement. Your solicitor may provide a further tax invoice if there are any additional professional fees and/or disbursement incurred, as a result of additional legal services required by settlement.

10 Keys

The keys may be collected from the agent after settlement. We recommend that you consider changing locks after settlement.

11 Registration

If you have a loan, then following settlement your lender/mortgagee will register the transfer and mortgage at the Land Titles Office. The mortgagee will retain the Certificate of Title as part of the security for the loan. Alternatively, your solicitor will arrange registration of your title.

12 Electricity

and other services It is up to you to arrange for electricity meter readings and the connection of other services by suppliers on the settlement date.

13 Final inspection

You should inspect the property just before settlement to ensure all is in order. The property should be in the same condition as at the date of settlement, as it was when you saw it prior to exchange of contracts, fair wear and tear excepted. We advise you to take photographs and date them. If there are any issues that you wish to raise, do so with sufficient time so that they may be resolved before settlement. If relevant,you should ensure that any vendor or
tenant has vacated the property.

At one settlement I was involved in many years ago, I acted for the purchaser. The vendor’s removalist slammed a door into the wall, leaving a round hole there in the shape of the door handle. I negotiated a reduction in the price to allow the purchaser funds to fix the damage. Usually you would only instruct your solicitor to negotiate for the bigger items.

14 Defects liability period

If you purchase a property off-the-plan, your contract may have a ‘defects liability period’, where the vendor is required to fix defects in the property due to faulty workmanship and materials.

If this is the case, you may have the vendor repair any relevant defects in the property at the vendor’s expense. Typically to obtain this list, in addition to making a list of defects yourself, you or your solicitor would arrange for pest and building inspection reports in relation to the property.

If so, you should instruct your solicitor to serve written notice to the vendor in writing prior to expiry of the defects liability period. The period is usually ninety (90) days or three (3) months after the date of settlement, although in some cases it may be six (6) months, depending on the contract.

15 Change of ownership

Usually in NSW, the Land and Property Information Office, also know as the Land Titles Office, will notify the council, the Valuer General (and Sydney Water) of the change of ownership, based on a form that is lodged by your solicitor or your lender’s solicitor after settlement.

16 Insurance

It is very important that you adequately insure the property, including: contents insurance if you keep contents in the property, landlord’s insurance if you lease the property, and Home Owners’ Warranty insurance if you carry out building work at the property.

David Singh is a solicitor and director of Sydney-based law firm Conveyancing & Property Lawyers, and a lecturer at The Property School. For further information on the process of buying and selling property, emailinfo@conveylaw.com.au, phone 02 9232 0050, or visit www.conveylaw.com.au. (Liability limited by a scheme approved under Professional Standards Legislation). © Conveyancing & Property Lawyers
Pty. Ltd. 2008. Reproduced with permission

No article can consider your individual circumstances or personal needs in  elation to your acquisition purchase transaction, you should seek advice for your  articular circumstances before entering into any transaction.

First Home Saver Accounts

The old adage that ‘slow and steady wins the race’ has never been more fitting than when used to describe first homebuyers. After all, unless you’re lucky enough to be gifted a hefty deposit, it’s slow going trying to save enough cash to invest into your very first home.

Enter the first home Saver Account (FHSA), a program designed by the federal government to provide Australians with a simple, tax-effective way of saving for their first home, through a combination of co-contributions and low taxes.

When the FHSA program was launched the in 2008, the announcement was almost immediately overshadowed by the doubling of the First Home Owners grant.

Suddenly, there was no need to cobble together a deposit in small increments over several years, as state and federal governments were handing out combined grants and packages worth tens of thousands of dollars to encourage homebuyers to act right away.

But now that the FHOG is back to $7,000 and the economy has regained some stability, it might be worthwhile revisiting the FHSA to see if it can help you take one step closer to your home ownership dream.

How it works

The program encourages you to save money by matching your own contributions with a 17% government co-contribution.

Essentially, the more money you save, the more the government will contribute, up to a certain limit each year. The maximum annual government contribution is currently $850 – equal to 17% of $5,000 – although this amount is increasing to $935 (17% of $5,500) for 2010-11.

You’re not liable to pay any tax on your account earnings, and you can set up an FHSA with any participating bank, credit union or building society. Also, you can still apply for a First Home Owners Grant if you have a first home saver account.

To be eligibly to open an account, you must:

• be aged 18-65
• have a tax file number
• not have previously owned a home in Australia that has been your main residence, and
• not have previously had a first home saver account
• make contributions from your after-tax income – you can’t salary sacrifice into a FHSA

The downsides

The FHSA offers a great opportunity to save towards your first home, but there are some potential negatives to be aware of.

The account works under a system known as the ‘four-year rule’. This means that you have to contribute at least $1,000 per year into your account in at least four financial years (not necessarily consecutive years) before you can withdraw the money to buy a home.

Therefore, you have to keep the account open for at least four financial years before you can access the money, the only exception being if you are aged 60 or older, in which case you can withdraw money at any time.

Also, if you change your mind and don't want your account anymore, you can’t simply close the account and withdraw your cash: your only option is to transfer the entire account balance to your superannuation fund.

If you plan on buying your first home within the next few years or you need more flexible access to your cash, then the FHSA may not be right for you. For more information and further details about eligibility and frequently asked questions, click here.

Find your first home loan

With hundreds of mortgage products on offer, it’s not easy to pick the right loan. In fact, it can be downright baffling thanks to the sheer range of options and features that various products can offer – not to mention the interest rate. So where do you start?

“There are up to 26 different features or attributes that define the structure of a mortgage,” says Michael Lee, consumer advocate at KeyFacts. “That means there are up to 26 decisions that you will either make or have made that directly affect the financial cost of your mortgage, the safety it affords you and how much stress and time it takes to manage your loan.

“Although it’s tempting to focus on interest rates as a starting point for comparing your mortgage options, an interest rate quoted on a website, in a magazine, in a newspaper or over the phone could be the nominal rate, headline rate, start rate or comparison rate. Each one is different and each includes a different, incomplete set of fees that the lender will or is likely to add to your loan.”

Where to begin?

Before you get too confused by the range of options available, there are a few questions you should ask before you plump for a particular product. Key among these are:

Loan term

• Principal and interest or interest-only?
• Flexible or basic?
• Fixed or variable?

Loan term

Loan term is the number of years it takes to repay your mortgage assuming you only ever make the minimum monthly, fortnightly or weekly repayments.

“In recent years, as borrowers take on larger and larger loans, terms have stretched beyond the rather old-fashioned loan term of 20 years,” says Lee.

Although terms of 25 years were common a few years ago, 30 years seems to be the new 25 and some lenders are
even encouraging terms of 40 years.

The upside of taking a longer term is that your mortgage repayments will be lower compared with a shorter term loan. If your cash flow is tight, this will help you get over the financial difficulties. The downside of having a longer term mortgage is that you’ll end up paying more interest and will be in debt for longer.

“As a general guide, the decision to stretch your loan from 25 to 30 years reduces your repayments by just 6%, however it increases your interest cost by 25% (based on a 15-year average of competitive rates, which is around 7.09%),” says Lee.

“This means stretching your term from 25 years to 30 years for a $300,000 mortgage lowers your monthly repayment by just $124 a month, however it will cost you almost $84,000 in extra interest.”

Principal and interest or interest-only?

You also need to choose whether you want a traditional ‘principal and interest’ (P&I) loan or an ‘interest only’ (IO) loan. A P&I loan enables you to repay both principal (the actual money you borrow to purchase the property) and the interest on the outstanding debt over a specified period – usually 25 or 30 years. As more and more principal is repaid, interest repayments decline, and at the end of the loan’s term, the loan would be completely repaid.

With an IO loan, such as line of credit, however, the principal isn’t repaid at all during the interest-only term of the loan – it is repaid at the end of the loan.

IO loans are usually taken over five years, but the term can be anything from one to 10 years. After the IO period expires, the loan can be paid out, refinanced or you can revert to a P&I loan. IO loans can apply to fixed and variable home loans. Interest rates are usually the same as those offered on P&Iloans.

IO loans are typically preferred by investors, as less cash is used to repay the loan than would be required if paying off a P&I loan. As only interest is repaid on the loan monthly repayments are lower than those on P&I loans. This frees up cash for them to use elsewhere. IO loans are also popular as they allow investors to claim large tax deductions – they claim interest payments as an expense of their investment. Such deductions are larger than would be the case if the investor simply took a P&I loan.

The main risk of an IO loan is that a property might not increase enough in value to cover repaying the principal and interest costs due at the end of the loan. This is a real risk in a market where property prices aren’t growing significantly, as is the trend at the moment.

“What many people overlook is that you have a larger debt for longer, which means you will pay more interest. What’s more, if your loan switches to a P&I after a certain period, say, five years, then your P&I payment will also be higher than if you took P&I from the very beginning, because you have a shorter time to repay your debt,” warns Lee.

Lenders are also reluctant to lend firsttime buyers interest-only loans at present, especially if they’re taking out a high loan-to-value ratio mortgage. You may find that a lender insists upon a P&I loan at least to begin with, until you’ve built up some equity in the property and the LVR is lower.

It all depends on your initial aims. If this is to build your wealth, then your best option is to repay principal and interest. A P&I loan allows you to reduce your debt to the bank and build equity in your home – in other words, it allows you to build up your wealth.

By paying principal and interest as opposed to just paying interest only, you will end up paying a lot less interest and you can build up your home equity a lot quicker. The downside is that your mortgage repayments will be higher.

Using the same rate (15-year average rate of 7.09%) as above, Lee explains that the decision to take an IO type on an ‘evergreen’ facility such as line of credit reduces minimum monthly repayments by around 14%, however it increases your overall interest bill by 50%.

“This means taking an evergreen interest only facility for 30 years – but keep in mind many lenders will only go to 25 years for this type of loan – on a $300,000 mortgage lowers your monthly repayment by around $242 a month; however it will cost you almost $213,000 in extra interest. Of course, shorter IO terms will reduce the cost, however the underlying problem of paying more for interest for small reductions in monthly repayments still applies,” he says.

Flexible or basic loan

The next important step is to decide whether you want a mortgage with fancy features, or whether you want a basic loan at the cheapest price.

A flexible loan – this includes most standard variable loans – typically offers features such as allowing you to repay your loan early without penalty or repay extra when you feel like it with the ability to access it a later time. These features allow you to dramatically cut your interest costs over time. Flexible loans, which are priced above basic variable loans, can also offer valuable features such as offset or all-inone facilities.

An offset or all-in-one facility allows you to have a savings account, the balance of which directly offsets your mortgage principal. This enables borrowers to cut interest costs substantially if they have a sizeable savings balance.

Flexible or standard variable loans also usually allow borrowers to redraw surplus repayments without penalty or for a small fee. Many basic loans don’t allow redraws, or lenders might impose very high minimum redraw amounts or limit the number of redraws you can make.

Some flexible loans also include a line of credit (LOC) facility. Essentially, this allows you to access additional funds by drawing on the equity value of your home – effectively turning your mortgage into a very, very large credit card.

Basic variable loans often don’t allow borrowers to make extra repayments or repay the principal early without penalty and they don’t carry offset facilities.

The upside of basic variable loans is that they tend to be a lot cheaper (lower interest rates) compared with the featureheavy standard variable loans. Many lenders have also started adding flexible features such as redraw in their basic loan offerings. So if you’re unlikely to have a substantial amount of spare cash that you can park in your offset account, then a basic variable loan might be more suitable for you.

Fixed or variable loan

A fixed-rate loan is best for people who like the security of knowing their repayments. A variable loan is best for those who like to keep their interest costs to the very minimum, and who are happy to gamble on the future direction of interest rates.

With a fixed rate loan, your interest rate and repayments are fixed for a set period, usually between one and five years. Most loans default to a variable loan at the end of the fixed term, or you can usually roll over to another fixed term. Fixed rates are usually priced above variable rates as fixed rates include a premium to allow for inflation.

A variable loan, meanwhile, can see the rate move from month to month.This is mostly influenced by changes in the cash interest rate, as set by the Reserve Bank of Australia on a monthly basis; however, it can also be impacted by commercial situations. For example, when the Reserve Bank raised the cash rate by 0.25% in November last year, the four major lenders all increased their standard variable rates by between 0.35% and 0.45% to cover increased funding costs. However, when interest rates fall, borrowers also see their repayments decrease – such as in 2008–09 when interest rates were at a historically low level of 3%.

The main advantage of fixed rate loans is that if interest rates rise, then you could save substantially on interest costs. It is also easier to budget for the middle to longer-term as you know what you are up for. Many analysts predict interest rates will rise by 2% over the next year or two, driven by the resources boom, low unemployment and the strong economy. The main disadvantage with a fixed rate, however, is that if rates fall, you are stuck with a higher rate – and you could end up paying more in interest costs compared with a basic or standard variable loan.

Fixed rate loans can also have substantial exit fees or break costs which are levied if borrowers repay their loan early. Some fixed rate loans also restrict borrowers from making extra repayments or redrawing, or they don’t allow fortnightly or weekly repayments. It is essential to check whether any of these limitations apply prior to going for a fixed rate. It’s important to shop around, as some fixed loans are more flexible than others.

The vast majority of Australian borrowers prefer to take their chances with variable rate loans, due to their added flexibility and features available. However, fixed-rate mortgages have seen a surge in popularity over recent months, as the spectre of significant rate rises over the coming years – up to 2% according to some commentators – makes locking your rate in more attractive.

The example opposite suggests how the rate on a variable and a fixed-rate mortgage for $400,000 might compare with a rising interest rate environment for the next year.

As you can see from this rough example – which assumes a high interest rate environment – the variable rate comes out slightly ahead. If interest rates do not rise this much, then the variable will be cheaper. Likewise, if interest rates rise further, the fixed rate looks like a good deal.

Much like the first two questions, which option you go for will depend on your personal circumstances, whether you’re happy to ride the ups and downs of the interest rates, how much month-tomonth security you need and what your future plans are.

Making a decision

The range of mortgage offerings continues to evolve and, while the information you’ve learned in the past may still be useful, it could now be outdated.

Therefore it’s important that you do your own research and talk to relevant advisors. Your first port of call to compare the interest rates, fees and features on fixed rate and variable home loans is likely to be comparison sites such as the Your Mortgage website, www.yourmortgage.com.au, which provides up-to-date mortgage rates and lists the cheapest loans currently available in Australia.

You can also engage a mortgage broker to help you sift through the pile of home loans available. Brokers can serve as a great resource to borrowers as they will typically have the latest information about home loan products.

The best way to find a top-notch broker is by word of mouth. Ask friends and family if they have used a good broker or know of one. If you get a name, pick up the phone and talk to the broker. If the on-phone conversation goes well, arrange to meet. If word of mouth recommendations don’t pan out, then choose a broker who works for a large, recognised firm.

Once you find a broker, use the broker checklist on page 42 to check their credentials. As a basic rule of thumb, make sure any broker you consult represents at least 15 home lenders. Check if your broker is a member of a professional association. Make sure you ask about commissions brokers get paid from the lenders they recommend. Once you have the advice of a broker, you don’t have to accept it. Their advice is free, or at least it should be. If you find a broker who charges upfront fees, look for another one as most brokers don’t charge for their services.

If you choose to undertake the home loan search alone, prepare for some hard work. Create a list of questions to put to all your prospective lenders. Your basic questions should at least cover interest rates, loan features and fees. Some of the answers will be confusing, even apparently contradictory and, once you’ve visited four or five lenders, it may all become an impenetrable maze of information unless you keep detailed notes.

The sheer array of lenders can be a challenge, too. Most borrowers head straight to the ‘Big Four’ banks – Commonwealth Bank, Westpac, NAB and ANZ – but there are a plethora of smaller lenders out there as well, including smaller, local and international banks (although some of these have been acquired by the Big Four during the GFC – notably St.George and Bankwest), credit unions, building societies and specialist ‘non-bank’ lenders – including some ‘web-only’ lenders.

The advantage of banks is that they typically offer customers completely integrated financial products. Banks can provide customers with savings accounts, credit cards, home insurance and other financial services for free or at a discounted cost, which many nonbank lenders don’t offer. However, nonbank and smaller lenders should not be discounted altogether, as they can offer competitive interest rates, innovative features and often cater well for situations which mainstream lenders may shy away from – self-employed borrowers, for example.

Don’t be afraid to try and negotiate either. Lenders may be willing to include extra features on basic loans – ideally one provided by a rival lender – waive fees or even offer discounted rates, especially if you’re looking at taking out a significant mortgage and/or other financial product. While the mortgage market may not be as competitive as it was before the GFC, there’s still plenty of competition out there for new business: if you don’t ask, you don’t get.

Knowledge is power

The better informed you are, the more likely you will be to choose a home loan  that genuinely meets your needs.

If you are a first-time borrower, then you’ll probably want a loan that allows you to repay your loan off as quickly as possible to keep interest costs to a minimum. You may also have half an eye to the future, and may be considering investing in property or upgrading a few years down the track. Several loan types from different lenders allow you to do just that, while retaining flexibility for the future.

The most important point for a first timer is to identify what you actually want out of your home loan. Identify your goals and stick to them; do your research about the different types of home loans and make sure you ask lots of questions.

First home owners guide

Owning your own home is the Great Australian Dream – however, it can also be a mystifying and confusing experience, involving many professionals and a seemingly arcane legal process. So, here’s our five-step guide to getting through the buying maze.

Step 1: Laying the groundwork

First of all, set your goals. Create a ‘to do’ checklist and tick them off as you achieve them. Set deadlines too, as this will help you achieve your final goal of owning your first home.

It’s essential to work out exactly where you stand financially. You need to know precisely what you’ll be able to afford to pay back each month, as well as what the upfront costs are going to set you back. Putting together a budget is relatively simple – as long as you’re disciplined about it. Essentially, you subtract your monthly expenses from your monthly income.

However, the key is being realistic: so factor every last thing into your equation. Do you stop for coffee or a drink on your way home from work? Write it down. Do you splash out on lunch one day a week? Include this. Don’t forget to budget for unforeseen circumstances such as illness or car damage. Once you’ve calculated your budget, work out how much this equates to in terms of the amount you can borrow.

Step 2: Research mortgages

Once you’ve arrived at a ballpark figure of how much you can borrow and how much you will need to have before you think about borrowing, it’s time to go loan shopping.

Doing the following things will help you choose your lender:

1. Ring some lenders, starting off with your current bank.
2. Speak to friends about their experiences with their lender. This is one of the best ways of gauging the type of service that you are likely to receive.
3. Check out ads in newspapers and magazines. After a few weeks of research you will get a feel for the various types of mortgage products available.

If you haven’t yet chosen a financial institution, it may be worth enlisting the help of a mortgage broker. They can suggest a wide array of loans that suit your needs. Go to page 46 for more tips on how to choose a mortgage broker. Once you have chosen your lender and home loan product, it is time to apply for your pre-approval. Turn to page 10 for information on the application process.

Step 3: Find a property

Don’t leap headfirst into viewing properties: talk to family and friends about possible areas for your first home, read property magazines (such as Your Investment Property and Your Mortgage), newspapers, and subscribe to property reports and newsletters to collate data. Websites such as www.realestate.com.au and www.domain.com.au are also useful.

Contact real estate agents in your suburb(s) of choice and sign yourself up to their daily and weekly property alerts. It can be a good idea to ask each real estate agent what properties they have on the market in your price range. Sometimes properties are not advertised online. Give agents your wish-list and ask them to contact you ASAP if anything comes on the market in your price range in your chosen suburb(s).

At this point, you should also be lining up a legal representative. Both solicitors and conveyancers are qualified to prepare documents for the registration and transfer of your property and give legal advice on contracts. It is imperative you get a few different quotes and settle on a legal representative that you feel 100% comfortable with. The best way to do this is to get recommendations from both family and friends.

Once you’ve established your price range, it’s time to familiarise yourself with what’s available at that price. Go to open for inspections in the area you’re looking to buy in, and take a ‘homebuyers’ checklist and a digital camera so you can record each home you inspect.

Take your time before making offers on your favourite properties. The key is to make sure you feel like you know the local market as well as or better than the agent you’re dealing with, and never stray from your buying capacity.

The most important thing here is to have your pre-approval in place so you can move quickly on properties you like, and keep your conveyancer or solicitor up to date with your progress.

Step 4: Due diligence

Once you’ve found the right home, it’s time to get the professionals in for an inspection. Don’t baulk at the cost – likely to be anywhere between $200 and $600. It’s vital you find out about any hidden nasties like rising damp, shifting foundations, faulty wiring and plumbing, etc. That way you can factor in the cost of repairs to the total amount of money you’ll have to fork out.

The only downside here is if the inspection reveals something seriously wrong with the property, or if you suddenly get cold feet for another reason. You’ll feel like the inspection was money down the drain, but think of it this way – what if you had discovered that colony of termites after settlement?

Step 5: Taking the plunge

If you’re satisfied that the property is OK, then it’s time to make your move. The price tag says $200,000. But how much do the vendors really expect to get?

According to one agent we spoke to, it’s wise to make an offer within 5% of the asking price, although the percentage can increase in a depressed market.

Chances are you can bargain the vendor down another thousand or two, but don’t be greedy, or you may miss out to someone playing the same game who knows when to stop. You want to get the best deal but don’t walk away from a property because of  $5,000. If you really want it, make the final negotiation.

Once you’ve agreed on a final sale price, you’ll need to notify your legal representative. Don’t sign a thing until your solicitor checks the sale contract.

If you are purchasing at auction, ask for a contract well beforehand. You may want your solicitor or conveyancer to include some special conditions into the contract.

When your solicitor or conveyancer gives the contract the thumbs up, and you have written loan approval from your lender, it’s safe to pay the deposit. The contracts between vendor and purchaser are then formally exchanged. Special circumstances aside, you are now legally required to go ahead with the purchase, and will face severe penalties, such as the loss of your deposit, if you don’t. Your solicitor or conveyancer will now make final checks on your property.

Checking out rates, heritage orders and general documentation are all part of the process known as conveyancing.

While you’re waiting for settlement, you should prepare change of address information, obtain removalists’ quotes and arrange quotes on any urgent repairs. Come settlement day, you and the vendor, your legal representatives and a representative of your lending authority meet to exchange cheques, sign the mortgage and other documentation. Welcome to your new home!

WHO YOU’LL BE DEALING WITH

Lender
The money men: these are the banks, credit unions, building societies and specialist lenders to whom you’ll spend the next 20-odd years repaying your mortgage.

Building inspector
The person who will save you from buying a shack that’s about to collapse. Ignore these professionals at your peril.

ConveyancerConveyancers handle the legal side of things and make sure the property that’s about to be yours will actually be yours.

Vendor
The person selling the property you’re looking to buy.

Real estate agentDepending on who you talk to, these are either silver-tongued hucksters or your best friend – either way, 99% of sales go through them. Just remember they work for the vendor, not you.

mortgage broker
These home loan specialists could save you hours of time researching mortgages and save you money – just be sure to pick a reputable one.

BuyerThis is you – obviously, the bestorganised and sharpest participant in the whole process. You will be after reading this guide, anyway.

Ask our expert a question

At Your Mortgage website we LOVE mortgages (really) so just send us your questions and one of our trusted mortgage experts will contact you to:

• Answer your specific mortgage questions
• Help you choose a loan best suited for you
• Help you complete any forms to make it easier to apply

Gavin Smith is Director & General Manager of State Custodians and has over 20 years’ experience in leadership roles within the banking services sector. An expert in personal finance, securitised lending and the mortgage industry, Gavin has a Post Graduate Degree in Management from the Australian Graduate School of Management (UNSW), including several mortgage and securitisation qualifications. For more information visit www.statecustodians.com.au.

Your Mortgage Magazine awarded State Custodians as the Best Overall Lender Customer Service in the Australian Home Loan Awards, including 6 additional awards.

To ask your questions, email direct to info@statecustodians.com.au
For more information visit www.statecustodians.com.au.

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