Five simple steps to land your loan before your home
With interest rates at a record low, and spring around the corner, now is the ideal time to start thinking about making a move into property. But before you hit go on the search for your dream home, make sure your finances are in good shape so you can get the loan you’re after. Here are our top tips to help you prepare before you meet with a lender.
1. Save for a deposit
Saving for a deposit takes time and can require a lot of discipline. The Australian Securities & Investments Commission (ASIC) suggests developing a savings plan as a first step.
To expedite your savings, cut back on any extra expenses, get a high-interest savings account, automate your savings, consider investing in shares or managed funds and if it’s an option, move back into your family home.
According to the financial comparison site, Finder.com.au, the average home buyer in Australia saves a 20 per cent deposit to buy their home but for some of Australia’s capital cities, 20 per cent is very ambitious. You can secure a home loan with a minimum deposit of anywhere between five and 20 per cent, but any deposit less than 20 per cent will require you to take out Lenders Mortgage Insurance, which protects the lender if you default on the loan.
2. Clear your debts
To increase your borrowing capacity, it’s a good idea to clear your debts before you approach a lender. This means, paying off your credit cards, store cards, personal loans and any student loans.
To clear your debts, ASIC recommends you tally up your debts so that you can get a clear picture of where you stand, prioritise your debts – which you’ll pay first and by when, and seek professional help to tackle them if you get stuck.
3. Set a budget
Peter Hanscomb, CEO Hockingstuart says the best way to meet your savings goals is to set a budget.
“To start building your budget, take note of how much you spend and where over a few weeks. What are the essential expenses, like your rent, bills, food, etc. and what are the extra costs that could be shaved off? A key thing to remember is to make your budget realistic so you can stick to it. That means reducing your day-to-day living expenses but also allowing enough leeway for one-off expenses.”
4. Access government grants
If you’re a first home buyer, there may be a Government grant available to help you with your first property purchase. First home buyer grants vary from state-to-state, so visit the first home buyer website (firsthome.gov.au) to find out what you may have access to.
5. Meet with a lender
Once you have started staving and have an idea of your budget and expenses, it’s a good idea to meet with a lender to understand realistically what you can borrow and how much left you have to save.
“A lender will also be able to give you advice on some of the additional costs of buying a home like stamp duty, which varies from state-to-state, building and pest inspections, solicitor and conveyancer fees, council and utility rates and any transfer fees.
“There are also ongoing monthly and quarterly fees that you need to consider too; strata, capital works, water rates etc. so it’s a good idea to get the full picture now, so you know everything you’re up for in the future,” says Peter.