I wrote about nothing but home loans for 7 years… and then I got one. Here's what I learnt

finder.com.au Home Loans Editor, Adam Smith

For the last seven years, I’ve written about nothing but the Australian home loan market, first for a business-to-business magazine for mortgage brokers and more recently as the home loans editor at finder.com.au.

In spite of all that time examining every minutiae of the home loans process, I’d never actually gotten one myself. I was a renter and thought myself doomed to stay that way. Then, after a lot of hard work, my wife and I finally bought our first home. Walking into the experience, I assumed I already knew just about everything there was to know about buying a home. I was very, very wrong.

I learned a lot while buying my home, but seven lessons stand out in particular.

1. Your deposit isn’t as big as you think it is

My wife and I managed to raise a pretty substantial deposit, so walking into the process I naturally assumed that I could work out our borrowing capacity from the size of our deposit. I had in mind a certain price range that we’d be working within in light of our deposit funds. But that deposit didn’t equal the sort of borrowing power that I thought it did.

This is because I’d forgotten to account for two important expenses: stamp duty and lenders mortgage insurance.

Stamp duty is levied by state and territory governments on large purchases. Most states have concessions and exemptions available for first home buyers, dependent on the cost of the home. For my wife and I, stamp duty concessions didn’t enter the equation due to the price range we were looking at. Stamp duty ended up chewing up about 40% of our deposit, meaning that the price range I could afford was much lower than I’d assumed.

Lenders mortgage insurance, or LMI, is an insurance policy that covers your lender in the event that you default on your home loan. It’s charged on home loans with a high loan-to-value ratio (LVR). Your LVR is the proportion that you’re borrowing versus the value of the home you’re buying. In other words, if you’re buying a $500,000 house with a $50,000 deposit, you’re borrowing the remaining 90% and you have an LVR of 90%. LMI is charged on home loans with an LVR higher than 80%.

LMI won’t eat into your deposit as it’s usually just added into your home loan. However, it will change your LVR, and thus your borrowing capacity. LMI can also add tens of thousands of dollars onto the cost of your home loan. Once stamp duty and LMI had been accounted for, the 10% deposit I thought I had turned out to be more like 5%.

2. The application process isn’t as intimidating as you think

No matter how long you spend writing about home loans, actually applying for one is pretty nerve-wracking. I assumed I would be grilled about every aspect of my financial life and treated as a pauper begging for a handout. My actual experience couldn’t have been further from this.

What I’d assumed would be a byzantine process of forms and paperwork actually amounted to no more than a half hour conversation with a home loan specialist. By the end of this conversation, I’d applied for a home loan. Less than 24 hours later, I’d been pre-approved. It was all so easy that I wondered what I’d been so intimidated about in the first place.

3. It pays to get all the details right the first time

While applying for a home loan was easy, getting all the details finalised was a bit more challenging. I didn’t realise that any tiny change to your home loan application means that the pre-approval process essentially has to start from scratch again.

Any changes to the amount you’re borrowing, your deposit, your finance details or any other details means that your application has to go back to the credit team to be assessed again.

By the time I actually signed a fully approved home loan contract, my home loan was on its fourth or fifth iteration. Each change had sent it back to the credit team and had meant a new pre-approval and another 24-hour turnaround time. The timing ended up working out okay, but I would have saved myself a lot time and hassle if I’d put a bit more thought into exactly what I needed before I applied.

4. Once your offer is accepted, things move very quickly

Whether you’re going to auction or buying a house by private treaty, once you and the seller have agreed upon a price, things will move at a dizzying speed.

We went to auction, lost, but still managed to buy the house afterwards by private treaty. Once we’d told the agent that we wanted to make an offer, the rest of the day was a frenzy of activity.

Suddenly I had to sort out a variety of details that I didn’t even know I had to worry about. I had to drop off the deposit cheque, sign the contract, find a solicitor, send a copy of the contract to the solicitor, get the solicitor to complete paperwork for the vendor and send a copy of the contract to my bank.

Within a few short hours of hearing from the real estate agent that the house was on offer, we’d contracted to buy it and begun the process of working towards settlement. By the next day we were popping champagne in the kitchen of what would be our new home.

5. The time between contract and settlement will be eerily quiet

Once all of this was done, though, everything stopped. The process became more about waiting, and it was actually easy to forget that we’d even bought a house.

Once you have pre-approval, there’s little left to be done to reach full approval other than a valuation of the property. Once that was done, we had to sort out a few documents for our solicitor. These were government documents for our eventual stamp duty payment. Then there was nothing left to do but wait for the day of settlement.

Of course, though it may have been quiet, the time between contract and settlement went by frighteningly fast, and suddenly it was moving day.

6. You don’t actually have to be present for settlement

When I pictured home loan settlement, I suppose I saw it as a solemn ceremony in which the vendor and I would sit across a table from one another as our solicitors handed documents back and forth and made us sign paperwork. In my head, it all culminated with the handing over of the keys and the deed to our new house.

In reality, I wasn’t even at settlement. It all happened while I was sorting out some last-minute cleaning and repairs at my old house. In truth, I sort of forgot about it until I received a text from my bank congratulating me. Then it was just a matter of picking up the keys to my new house from the real estate agent. The event I’d built up in my head to be quite formal had actually been rather anticlimactic.

7. You’ll be terrified the first time you look at your loan account

Once my home loan was settled and I finally owned my own home, I was ecstatic. It’s an incredible feeling to have a place to call your own, and in Sydney it feels like a real accomplishment. It took me nearly 38 years, but by God, I was finally an adult.

Then I looked at my bank balance.

I was used to seeing a reasonably healthy net position when I logged into my Internet banking, given that my wife and I had had a home loan deposit sitting in our account for more than a year. It was quite a shock to log into my account the day after settlement and see an unfathomably large number printed in red.

But my wife and I were smart in how we went about the home loan process. We budgeted conservatively, we made absolutely certain that we didn’t take on more debt than we could afford and we bought within our means. For all that, we still ended up with our dream house. That number might look intimidating, but we put in the work and did the sums to give us the confidence that it will be more than manageable. And it’s all worth it to finally, finally own a home.

Maybe those seven years did teach me a thing or two.