Home ownership is the great Australian dream. When you are looking to buy or build your first home, check out these tips to make sure your finances are in order, before you apply.
Employment history
Having stable employment goes a long way when applying for a home loan. Most banks and lenders prefer it if you’ve been with your current employer for at least six months, though some as little as three months in certain circumstances.
If you have recently changed jobs, lenders will look favourably if you have a solid history in a similar role in the same industry. Particularly with fly in fly out, casual or contract employment, the longer you have been in the industry, the better it looks with banks and lenders.
Savings
Most lenders are keen to see “genuine savings”, which can be as little as 1% of the total cost of the home as a deposit. This means savings that have been made on a regular basis, or that have been held in your account for a three-month period.
Work out how much you will need to have saved, create a plan and stick to it. Open an interest-bearing savings account, and automatically deposit a set amount each week/fortnight/month depending on your pay cycle.
To better help your savings, consider cutting back on unnecessary purchases – take your lunch to work, have your morning coffee at home. Plan your weekly meals ahead of time to avoid impulse spending. Hold back on buying the luxury items and brands while you’re trying to save, and look out for freebies: think coupons, vouchers and samples.
Be aware of government grants that can count towards deposit and fees.
Reduce Debt
Your credit limits on all your cards and loans taken into consideration when applying for a home loan. Even if you owe nothing on your $20,000 credit card, your lender will base your monthly commitment as if you owe the full amount. This can drastically reduce your borrowing capacity.
Review your credit limits – pay down your unnecessary credit cards and reduce them, or cancel them completely.
You may also want to review any unnecessary monthly commitments, – consider if you can cut back on any monthly subscriptions and review your utility bills to see if you can save money there.
Credit history
Your credit history is an indication of your borrowing activities, from loan applications, credit cards history, to utility payments and mortgages. Lenders and financial institutions can access your credit history, which can impact your chances of getting a home loan application approved.
No matter how small the bill is, if you fail to pay on time you risk having a default lodged on your credit file. The best way to keep your credit history clean is to pay your bills on time, and should you have any issue with making the due date, contact the provider (including household utilities) and let them know.
Know your budget
To know your budget and borrowing capacity, it is a good idea to get pre-approved first. The benefits of getting a pre-approval or eligibility letter is that it’s free and valid for three months.
It gives you a clear idea of how much you can borrow based on your income and commitments, and this will also enable you to know how much you will need to save as deposit as well as fees that you’ll need to pay.
Speak to our in-house Finance Brokers, Central Lending Solutions, who will do the shopping around for you to explore your options and find the best deals out there for your particular circumstances.
