With interest rates at an all time low, and expected to potentially drop further, it’s no wonder more people are weighing up whether buying now is right for them. Getting out of the rental market and having a property to call their own is important for many but getting the finance for a home loan isn’t as easy as it seems.
Phil Mikhail from Mortgage Port believes getting a loan from a bank is now more complex than it was prior to the introduction of Responsible Lending Lending legislation. Banks are doing more in-depth due diligence on borrower’s expenses and looking for borrowers who understand where and how their money is being spent.
It is that due diligence where a lot of people are tripping up on when they apply for a loan. Whereas in years gone pasts, banks may not have been too concerned about a late payment here and there, now, they are checking whether and how regularly you use services like AfterPay, ZipPay and Uber, as well as your credit history and whether you pay your bills on time.
Lenders also want to see good savings in your bank account that proves you can live within your means. This is all on top of the minimum 10% deposit that many lenders require borrowers to have before they even think of getting a home loan.
It is only after understanding that the lending criteria for banks have now dramatically changed, that first home buyers or those buying their first investment property start to wonder whether it’s worth it, or whether they should just keep saving for a little while longer.
Getting Your Budget Right
We’ve all heard how beneficial it is to do a budget. Done well, we know where our money is going and where we can cut back when we need to. But when buying a home, first home buyers need to establish whether they can afford not only the mortgage repayments, but rates, water, insurance and maintenance on top of their everyday living costs.
Phil Mikhail suggests that “for borrowers, it is essential to have a good understanding of where you spend your money. Prior to seeing your bank or broker, put together a budget which will give you a better understanding of your household expenses”.
Expert Advice is Essential
When considering purchasing a home, it is always a great idea to gain expert advice, whether that be from your accountant or your broker, or any other professional within the field. If you are using a broker, you need to choose someone who has plenty of experience.
When asked about multiple enquiries, Phil says that “ prospective borrowers should obtain a copy of their credit file through one of the credit agencies such as Equifax. Too many credit enquiries are not a good thing to have on your credit profile. It is certainly encouraged for borrowers to be aware of what is on their credit history and what might hurt their chances at home finance.”
Why a broker over a bank? Bank home loan experts tend to advise new buyers that they need at least 10% deposit, and in this current climate, some new home buyers are needing to find up to 30% deposits. A company like MortgagePort, will help you find a home loan that suits your needs as a borrower rather than solely suiting the lender’s policy, which is what you would typically get from a major bank.
You may well find that you don’t need a 10% deposit; in some circumstances, such as buying off the plan, you can sometimes pay as little as 5% up front, and then the remainder of payment on settlement. This can work both for and against a new home buyer – the longer lead time between deposit and settlement gives you more time to build up funds (which means less borrowed from a lender). On the other hand, finances can change quite considerably in that time, and you may find that you can no longer service the loan. This is where an experienced broker can help, ensuring you can still qualify for a loan long before settlement date.
Similarly, a 10% deposit may not be necessary with a family pledge. For example, parents can help out their children by putting down family property as the deposit or equity for the loan. Again, the need for someone reputable giving sound advice is critical in understanding exactly where you sit and what you can do to purchase property.
When you’re considering purchasing your new home, make the time to speak with an experienced broker who can give you the information you need to help you get into your new home sooner. Even if you’re just starting to think about buying, the earlier you talk to a professional, the more prepared you are going to be, and this will only make you better off in the long run.