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Give your finances an essential health check and be one step closer to owning your first home

When buying your first home, there are many boxes to tick, especially when it comes to your finances. As the country slowly moves into a post Covid state, now is the time to conduct an essential overhaul of your financial situation so you can put your best foot forward and successfully enter the real estate market.

Hockingstuart’s CEO, Peter Hanscomb, highlights the important factors that must be thought through to ensure the best possible outcomes for purchasing your first home.

Start saving

Saving for a deposit takes time and can require a lot of discipline in day-to-day spending. But the ability to save is one of the first things a lender will look at when it comes to your capacity to service a loan. Lenders see your ability to save as an example of how well you can and will handle your finances in the future. Borrowers who regularly save are more likely to get their applications approved. 

“A good way to start your savings plan is to set up a high-interest savings account, putting a portion of your pay into it every time you get paid. Try setting the goal of saving 20 per cent, but this may not always be realistic. So, keep in mind, it is possible to secure a home loan with a 5 or 10 per cent deposit. However, you will need to pay the Lenders Mortgage Insurance, which can be paid as a one-off payment or rolled into the loan repayments,” says Peter. 

Clear your debts

This includes paying off credit cards, store cards, personal loans and student loans. Clearing as many debts as possible will give you greater borrowing power.

To get on top of your debts, the Australian Securities & Investments Commission recommend to;

• Tally up your debt from all sources to get a clear picture of where you stand
• Consider seeking professional help tackling the debt 
• Set a budget, one that is realistic and that you will stick to. If you can afford to, put more towards extra repayments 
• Prioritise your debts. This can be either paying off the debt with the highest amount of interest or paying off the smaller debt first, which will give you a sense of achievement
• Make your repayments automatic  

Set a budget

“To get an idea of what your budget should be, over a few weeks, take note of how much you spend day-to-day and where. What are the necessary expenses like rent, bills, food and what are extra costs like subscriptions or social events?” explains Peter. “This strategy will help you identify a pattern in your spending habits, pinpointing the areas where more money can be saved, for example cutting out the morning coffee run.”

Establishing a realistic budget that reduces your daily expenses, while giving enough leeway for those one-off expenses – will ensure the set budget can be achieved for a certain amount of time and contribute to the ultimate goal of purchasing real estate.  

Meet with a lender

Meet with a lender to gain a greater understanding of your financial position and to gain a third-party perspective on what can be achieved through consolidating debts and sticking to a savings plan.

Based on current incomes and living expenses, a lender will outline a rough estimate on the amount of money that could be borrowed, which will inform how much will need to be saved for the deposit and what steps need to be taken to achieve that.

“Having a set figure to work towards is a great motivation tool to ensure debt can be reduced and savings can increase,” says Peter.  

For more information on how to understand your finances, and prepare to purchase your first home, reach out to one of your local Hockingstuart office or agents today.