13 property terms you need to know
Applying for a home loan and trying to climb the property market ladder for the first time can be an intimidating process.
The property world has a language of its own, filled with alphabet soup-like jargon like LMI, FHOG and DTI that can make your head spin.
For those looking to break into the property market this year, here are some of the most common acronyms that will help you navigate the process with ease.
An acronym for loan-to-value ratio, LVR is the value of a property in comparison to the amount of money being borrowed through a home loan. Calculated as a percentage, LVR is used by lenders to assess the level of risk associated with accepting a home loan application. The lower the LVR, the less risky your application may be perceived by the lender.
Standing for lenders mortgage insurance, LMI is a one-off, non-refundable, non-transferrable premium that's added to your home loan by your lender. It is essentially an insurance that protects the lender when you borrow more than 80% of your home's value. It's important to note that you can save on LMI by saving a bigger deposit.
Known better as the First Home Owners Grant, FHOG is a one-off payment to encourage and assist first home buyers to buy or build a new residential property for use as their primary place of residence.
It is often restricted to new homes under a certain price threshold in most jurisdictions.
Each state and territory has its own terms and conditions when it comes to the grant, however, typically applicants must be:
- Aged 18 years or older
- Be a permanent resident or Australian citizen
- Purchasing a property for the first time
The First Home Loan Deposit Scheme (FHLDS) allows first-home buyers who are over the age of 18, Australian citizens and earning $125,000 or less annually as a single, to purchase a property for as little as 5 per cent deposit, eliminating the need to pay LMI.
The First Home Super Saver Scheme, which is commonly known as FHSS is yet another first home buyer scheme that allows those over the age of 18 to withdraw a portion of their extra super contributions, maximum of $15,000 per financial year, and use it as a deposit for their first home.
A principal place of residence (PPOR) duty concession is available when you buy a new or established property valued up to $550,000, which you intend to move into within 12 months of your settlement date and live in as your primary home for at least a year.
Short for debt-to-income ratio, DTI is a personal finance measure that compares the amount of debt you have to your overall income. Lenders use DTI as a way to measure your ability to manage the payments you make each month and repay the money you have borrowed.
Debt service ratio, also known as DSR, is a method used by lenders to calculate whether you are able to afford the loan you are applying for. Based on your monthly net income and the total fixed debt you have to pay each month, lenders can see for themselves if the loan is realistically within your financial limits.
The average annual percentage rate (which is similar to a comparison rate) is the yearly interest rate that you must pay on a home loan. AAPR includes expenses such as account opening and account keeping fees.
P&I refers to principal and interest, and is used to describe a type of home loan repayment. P&I repayments are your monthly repayments on your home loan that include the loan amount and interest rate charged by your lender.
Interest-only or IO is another type of home loan repayment. IO repayments include the interest charged by your lender and not the loan amount.
Standing for low doc loans, LOWDOCs are especially designed for self-employed workers, who often can't provide traditional proof of income like regular pay slips. The term "low doc" doesn't necessarily mean you have to provide less evidence of your income, rather, it's all about providing different types of evidence of your income. Note: not every Australian lender offers low doc loans.
The Reserve Bank of Australia (RBA) is Australia's central bank. The RBA sets the target for the cash rate in the Australian cash market - the market in which banks lend to and borrow money from each other overnight.
By understanding some of the commonly used home loan abbreviations you will not only be more clued up when it comes to speaking with lenders and professionals, but it will help you to make the most informed decisions possible and get you one step closer to achieving your homeownership dreams.
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