How to secure your first home loan
Owning a house is for many the ‘Great Australian Dream’, and with property prices on the rise and demand surging, it can seem like just that – a dream. Difficult though it may seem, investing in the property market isn’t impossible.
The first step to owning your very own home is securing the loan to help you buy it. Here’s some information about what’s involved in the process, and some advice to help you make sure your finances are set before you meet with the broker.
1. Balance the books
For most people, a home loan is the biggest debt they will experience in a lifetime. So before you jump in the deep end, it is important to first clean up any existing debts you may have against your name. Things like car loans, personal loans and outstanding credit card debt should be tackled before you ask the bank for more money.
2. Credit history
On a similar note, the bank wants to know you pay your bills when they are due. This includes but is not limited to phone bills, electricity, tax returns and rent. With a clean record you will be an attractive candidate for the bank. Without… we suggest working towards a good three month period of bills paid on time before you start to consider the extra financial burden of a mortgage. Don’t bite off more than you can chew!
While we all dream of that multi-million dollar dream house, it’s time to get real. Whether it’s just you, you and a partner, or you with a little help from mum and dad – an important step of the process is figuring out exactly what your borrowing capacity is. This is a formula based on how much you have in deposit amount, and what you can afford in monthly repayments and interest. In order to stay on top of repayments – and still live a relatively stress-free life – it’s best to keep your housing cost under 35% of your income, and your debts under 45%. There are useful calculators to help you calculate a ballpark figure for your borrowing capacity. Try this one from Your Mortgage.
The bank needs to know you’ve got regular money coming in – how else will you make your repayments! They will assess how long you’ve been in your job, how often you’ve moved around from employment and what kind of work you are doing. Stability is key.
5. Time to save
With your debt cleared, a clean credit history and a figure in mind, the most important step for obtaining a home loan is saving a deposit. This is the hard part. You may need to make some sacrifices from the lifestyle you currently enjoy to speed up this process. Aim for a 20% deposit to avoid adding Lender’s Mortgage Insurance to your loan.
6. Ask the pros
No first home buyer is an expert in the field. It’s important to fully understand the process before you commit to a loan, so why not ask an expert? Meeting with a home loan advisor or a financial institution is in most cases free of charge, so shop around for advice and deals, and see what your options are. Consider visiting a financial or property adviser who can give you tips on where and how much to invest.
Start the journey and make your dream of home ownership a reality.