Tips for sorting out your finances to buy a home
Getting your finances in order is an important part of the property buying journey.
Without fully understanding and monitoring your expenses, assets, liabilities and income capacities, lenders may not be capable of providing you with a home loan. By reviewing these financial components, you will have a better picture of what you home you can afford, the type of loan you are aiming for, which loan products suit your needs and how you will manage the ongoing costs associated with owning your own home.
To help you get into a home of your own, we have outlined some tips for sorting out your finances:
1. It’s never too early to start getting your finances in order
When it comes to buying a house, as soon as the idea pops into your head, it’s a great idea to touch base with a mortgage broker or lending institution. This way you can discuss your potential borrowing capacity, which will help establish your maximum budget as well as any deposits required so you can prepare your savings plan.
2. Understand your current financial position
Pre-approvals are valid for three months so once you have your deposit and are actively starting to look at houses; this would be the time to lodge the pre-approval application.
Have an informal discussion with a mortgage broker or lending institution around your potential borrowing capacity, maximum budget and required deposits as early as possible. During this initial discussion you can tailor a savings plan towards your deposit requirement. If you need to increase your borrowing capacity, the broker can advise if any existing credit facilities need to be repaid and closed off before applying for the housing loan.
3. Build your savings account
Start depositing the approximate amount of your proposed mortgage repayments plus other expenses into a savings account. This will help you manage your budget and achieve the 5% genuine savings deposit that is generally required when purchasing your first home.
4. Discover the right loan for you
Do your homework on the type of purchase scenario to best suit your situation. Each purchase scenario comes with its own set of pros and cons. Understanding the different types of loans, fixed or variable etc, is important in deciding what is the best setup for your situation.
5. Know the area of your future home
If you know the area you want to live in, a good idea is to rent a home there first to understand the cost of living and associated expenses of the area as it can differ place to place depending on local rates and travel costs to and from work/schools. Importantly, it provides you with good insight into the location before locking yourself into an area that may not suit you in the long-term.
It is also good to know what are some common mistakes first home buyers make when it comes to organising finances.
1. Manage expectations
First home buyers often have a purchase price in mind which may not reflect their actual maximum borrowing capacity. You should discuss your borrowing capacity well before you get to this point to eliminate any surprises.
2. Do your research
Many first home buyers aren’t aware of all the options that might be available to them to help them get into a home sooner. There are a range of Government initiatives available, including the First Home Owners Grant as well as lending opportunities through institutions like Keystart to help those with little or no deposit to purchase their own home.
3. Factor in all assets
It’s quite common for first home buyers to be gifted funds or perhaps they may sell an asset such as a car in order to cover their required deposit. There are certain criteria that must be met when it comes to the deposit requirement and the criteria may vary depending on each individual scenario. This is something that can be discussed in the initial informal discussion with your mortgage broker.
4. Don’t over extend yourself
First home buyers often ignore their protection needs, so it’s important to not only be able to afford to service your loan and keep your house, but to also be able to do it in the event of any accidents, illness or injury.
Utilise the tips above to help you achieve your reality of being a homeowner.
Disclaimer: The information provided is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Pindan Secures $7.5m Pilbara Property Contract
14 Jan 2020