How to Get Prepared for Your First Home Loan
Six Steps to Get Prepared for Your First Home Loan
Are you thinking about jumping aboard the homeowner bandwagon? We’ve assembled a list of six essential steps to assist you with improving your odds of securing your first home loan.
1. Examine Your Expenses and Save Your Deposit Target
The initial move towards getting your own house is saving for the home loan deposit. To do that you first need to comprehend your financial position in order to set a budget for your property purchase.
This can be confronting, as it requires you to become very aware of where you spend your money and how much is left over at the end of each month.
If you go through three months tracking where all your money goes, you’ll be able to assemble a decent picture of both your fixed expenses and variable spending. You would then be able to settle on what expense stays and what goes in order to assist you with being in a better position to secure that first home loan.
There are some free third-party resources you can use to easily track your expenses like the Moneysmart budget planner.
If you become overstretched when you have a mortgage you might find yourself living on two-minute noodles or in trouble of potentially defaulting on your home loan.
For that not to happen create a realistic budget now. The 50/30/20 rule is an easy budgeting method where you divide your monthly after-tax income into three spending categories: 50% for needs, 30% for wants and 20% for savings or paying off debt.
Now, let’s talk about saving for your deposit.
To realize precisely how large your deposit ought to be you want to; investigate the area you desire to live in, recent sales prices and the average percentage price increase year on year. That will provide you with a good idea of what you need to aim for.
Have a look at this online saving calculator to perceive what you need and are able to save each month over different timeframes, so you can work out how long it will take you to reach your goal.
In an ideal world, you’d save a 20 per cent deposit then you’ll avoid paying Lenders Mortgage Insurance (LMI). Which is an insurance policy designed to protect the lender from financial loss on the off chance that you can’t afford to meet your home loan repayments.
It kicks in when you borrow more than 80% of a property’s price and it’s calculated on a sliding scale: the higher your loan amount and loan to value ratio, the higher the premium. So, it could cost you anywhere from a few thousand dollars up to tens of thousands of dollars.
With the present high property costs, a 20 per cent deposit is a stretch for most first home buyers, so focusing on 10 per cent deposit might be more attainable and will in any case diminish your LMI premium.
2. Get Your Credit Ready
When looking to buy a home, it’s truly important that your credit history is in as great a shape as possible.
To start with, take care of any outstanding debts if you can. Clearing your debts plus a history of regular savings in your bank account, combined with a good record of employment, will really help you secure a home loan in the future.
It’ll likewise stop you from paying over big sums in interest; as credit card debt gobbles up money, so you must clear it.
Once that is done, check your credit rating, which is a record of the credit applications you’ve made (including credit cards), the amount of money you have borrowed and whether you pay on time.
Lenders generally use your credit score to figure out how risky it will be to lend to you.
Most credit scores are somewhere in the range of 300 and 850. The higher the score, the better your credit score is. You can find your score for free online. View the report and ensure everything is precise.
On the off chance that you see any mistakes, now is the time to address them.
If you have a poor credit score it may affect your ability to get a loan, but there are a few things you can do to improve your score. These include lowering your credit card limit, paying your rent, bills and credit card on time, and limiting how many applications you make for credit.
If your credit history looks good when it comes to applying for your home loan, you’ll have a better chance of obtaining it. So, in the time between now and when you apply, don’t fall behind on bill payments or add any new debt.
3. Understand all the costs associated with buying property
If you borrow $400,000 at an interest rate of three per cent and a loan term of 25 years, you could undoubtedly work out your monthly repayments to be $1,907.
In any case, there are heaps of little additional expenses and fees that are part of applying for a home loan to become a homeowner.
These have the potential to add up quickly, so it’s super important to do your research into the details of any offer you look at.
So, it’s a smart thought to consider these expenses in your budget calculations before you apply for a loan.
A portion of the additional expenses you might need to budget for include:
- Stamp duty
- Lenders mortgage insurance (LMI)
- Bank fees
- Advisor fees (e.g., conveyancing costs)
- Council rates
- Land tax
- Home insurance
- Body corporate fees for strata property like an apartment or townhouse
- Maintenance and repair costs
- Property management fees which are for those who lease out their properties
4. Obtain Expert Advice
Expert advice is another likely expense, yet there are benefits in obtaining help. Whether it’s a buyer’s agent, accountant or real estate broker, their knowledge and specialisation could save you money in other areas.
Not to mention steering you through some of the more technical aspects of buying a home.
For instance, a great mortgage broker can help you assess your financial position, review your credit score, and advise on lender and loan products for your circumstances.
They can assist you with understanding the fees and features of available home loans across multiple lenders. In addition, clarify the advantages and disadvantages of various loan structures.
5. Get your Paperwork Organised
Regardless of whether you go directly to a bank or through a broker, you’ll need to prepare quite a bit of paperwork as proof of your financial position.
The documents required include personal identification (current passport or driver’s licence), rental statements, proof of income (payslips/ a group certificate, tax returns), bank statements showing savings and investment history, and evidence of assets and liabilities (credit card statements, personal loan statements, superannuation statements, share investment holdings).
It’s a good idea to create a virtual folder and upload scanned copies of these documents so that you’re prepared to present them when it’s time to make your first loan application.
6. Preparation is Key
While there is a decent amount of homework associated with preparing for a loan, following the above steps could assist with placing you in a favourable position to get your first home loan and transform that dream of home ownership into a reality.
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