Making sure as a first time home buyer that you are ready for the financial responsibility of a home loan, is an important step to take when you’re looking into one of the biggest decisions you could make in your life. As you are more than well aware, mortgages are large sums of debt that – if not taken seriously – could prove be a large financial mistake and have an impact on the whole of your adult life.
You may feel financially at ease at the moment, but getting into the habit of making regular mortgage payments could be a great way to see if you’ll be stretching yourself too thinly with your money. First time home buyers often doesn’t take into account their regular weekly expenses, including essentials like groceries, transportation costs, home repairs and insurances.
Here are some tips to help make your first home loan as simple as possible.
Review your finances
Before applying for a home loan it’s a good idea to assess your spending habits.
List your income and all expenses, including bills, groceries and entertainment on a budgeting spreadsheet or calculator – one such calculator is available at www.moneysmart.gov.au
Make sure you take into account all other initial and ongoing costs involved in buying a property, such as lender application fees, stamp duty, conveyancing and legal fees, strata fees if purchasing a unit, and council rates.
Try your loan on for size
Having foresight when it comes to planning for a home loan could make the difference between success and failure. A great way to assess your true mortgage borrowing capacity is to try your mortgage loan on for size before you commit, work out how much income you would have left over if you were to take out a certain size mortgage and then start living by it.
If you can comfortably manage, that’s great, but if you can’t, you might need to reassess how much you can reasonably borrow for a mortgage, also it is a great way to build your savings.
Build up your savings history
Even though lenders no longer ask for a 20% deposit, it’s still a good idea to establish a regular savings habit. In fact, many lenders require a record of savings history as part of the criteria for applying for a home loan.
If possible, consider share houses or even moving back in with family to save on rent, and look at little ways to save such as cooking dinner at home rather than eating out.
Opening a high interest savings account or term deposit will help you grow your deposit faster as many institutions offer competitive rates. You may also want to consider a First Home Saver Account, which gives you concessional tax treatment on earnings, plus government contributions to help you save for your dream home.
Reduce your debt & clean up your credit file
It is a good idea to pay down personal debt such as credit cards and store accounts as much as you can prior to buying a property. If you’ve had multiple credit cards over the years or made a few late payments on any bills, it may be beneficial to obtain a credit report to get an idea of where you stand.
Close all unnecessary accounts and ensure that any regular payments are up to date. Paying down your debts and minimising the number of accounts you have will not only allow you to borrow a little more, but also give you a bit of financial breathing space in your budget. This will be important when interest rates inevitably start to rise.
Speak with an expert mortgage broker
Speaking with an expert mortgage broker can help you to get your finances in order and aid your planning, they will be able to set you on the path to purchasing your first home and will assist you all the way till the settlement of your first home.
Many Australians grow up with the aim of owning their own home one day, and with interest rates at their lowest in 50 years, it may be a good time for the financially prepared first time home buyer to take the plunge.
For most of us, buying a property is probably the biggest financial commitment we will make in our lives, so it’s important to approach it wisely.
By doing your research and following a few guidelines, you’ll be able to turn the great Australian dream into reality.
Assistance for the first time home buyer
Make sure to find out if you are eligible for a Government First Home Owners Grant, as not all states and territories offer concessions for first-time buyers.
For example, the Queensland Government’s $15,000is only available to the first time home buyer who is building or buying a new home, while in Western Australia grants are available for first home buyers who purchase either a new or established property.