Buying a home is quite often the largest financial decision most people make, and it needs to be carefully considered.
Before going down the path of purchasing a home, it’s vital that you get your finances to ensure that, firstly, you can get the required finance, and secondly, you will be able to manage the repayments in the future.
You can do a few things with your finances to give yourself the best chance of getting into your dream home.
Start Saving
Managing money is an important life skill, and unfortunately, it is not one that everyone has.
When it comes to purchasing a home, there are several benefits to having an effective savings plan. The first is that lenders require you to come up with a 20% deposit. While there are other options at your disposal that can help here, generally speaking, borrowers requiring an LVR (Loan-to-Value Ratio) greater than 80% will be required to pay Lenders' Mortgage Insurance (LMI), which can be expensive.
It’s also worth remembering that on top of your deposit, you could be required to pay stamp duty (unless exempt) and certainly settlement costs, amongst other expenses. Getting into the habit of putting money aside every week and working within a budget and towards a goal will also hold you in good stead when the time comes to start making repayments.
Another important consideration is that lenders require you to have a certain amount of money in genuine savings. The ability to show them not only your savings but a track record of managing your money well makes you stand out as a person they will want to lend to.
Improve Your Credit
One of the key factors lenders look at is a borrower’s credit score. A credit score is effectively your track record of managing debt. Get into the habit of paying off bills when you receive them and always pay down your credit cards each month. Practices like this will help boost your credit score, and lenders will certainly take note.
Pay Off Debt
If you’re looking to take out finance for a new home, a lender will certainly want to know about any outstanding debts. Your payments on these debts will be a factor in calculating your ability to service any future loans.
On top of this, lenders also assess your debt-to-income ratio, and many major banks have fixed metrics they must adhere to.
Paying off debts is typically a good idea, regardless. However, when you’re looking to take on more debt, it’s important that you don’t have things like overdue credit cards and personal loans with high-interest rates weighing you down.
Get Pre-Approved
The best way to know just how you are looking financially in the eyes of a lender is to get a pre-approval.
By talking to a mortgage broker and starting the process of getting pre-approved, you will get a very clear understanding of where you currently stand. If there are any issues with your credit history or outstanding debts, your mortgage broker will be able to sort them out; or at least start the process of turning things around.