April 14 2021
"Do you have the right financials and habits in place to secure a property investment? Find out below!" - Ben Crow, Chief Operating Officer
Buying a home is a top priority for many Australians, and record low interest rates have helped fast-track property plans all across the country. But the decision to take out a home loan isn’t one to be made lightly. Here’s how you can know you're ready to take on the responsibility.
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You have a deposit saved up
If you’ve saved up a deposit, you’ve already made significant strides in your home ownership journey. Ideally, lenders will want to see a deposit equal to 20% of a property’s value. But there are workarounds if this is out of reach.
For example, it’s possible to take out a home loan with a deposit of as little as 5% so long as you purchase Lenders Mortgage Insurance. This is to make sure your lender won’t be out of pocket if you default on your loan.
There are also government initiatives aimed at helping those with insufficient savings get on the property ladder, such as the First Home Loan Deposit Scheme and the First Home owners Grant. You could also ask your parents to be your home loan guarantor if they have the means and are willing to help.
Your job is secure
Another important area lenders will be looking at is your work history. A full-time job that you’ve held for at least a year signals stability, and will inspire much more confidence in lenders than part-time work or a series of temporary jobs. It’s also a good indication that you’ll be able to keep up with repayments, especially if it pays well.
You’re prepared for the extra costs
Your mortgage might be the biggest cost associated with buying a home, but it’s not the only one. Once you’re a homeowner, you’ll find there are several more expenses you’ll have to manage, including utilities, taxes and insurance.
The cost of maintenance and repairs will also drive up your budget, particularly if you intend to purchase a detached house. And if you’re looking to buy an apartment, you’ll have to factor in strata fees, which can be fairly exorbitant if you live in a large complex.
You prefer stability
Renting might suit some people just fine, but if you want more stability in your life then owning a home is probably the better option of the two. While it might come with its own set of challenges, you’ll no longer have to worry about rising rents or possible evictions. And if you get the urge to make any changes to your living space, you won’t have to ask for a landlord’s permission.
You have a good credit score
When determining your ability to service a loan, one of the main tools banks have at their disposal is your credit score. This is the number which reflects all the credit applications you’ve made, the amounts you’ve borrowed, and your tendency to repay on time.
A high credit score signals to lenders that you can be trusted with borrowed money. Not only are you more likely to have your application accepted than someone with a middling credit score, you’ll also have a much easier time securing a bigger loan.
But even if your credit history isn’t all that impressive, there’s no need to stress. There are always ways to improve your credit score (though it may take some time). And in any case, lenders will be looking at your overall financial standing when assessing your creditworthiness.
You can stick to a budget
Before your lender can approve your application for a mortgage, you’ll need to be able to show you can stick to a budget. Promising to rein in your spending once you’re approved won’t cut it — lenders will want to see evidence that you’re responsible with your money right now.
To this end, lenders will look over the last three months of your bank statements to make sure you’re spending within your means. If you’re able to show you possess good money management skills, it’s a surefire way to get in their good books.
For more tips to help you get off to the right start, read our first mortgage guide. And when you’re ready to purchase your dream home, make sure to compare home loans to find one that suits your needs.
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Source: Mozo
Iliakis, N. (2021, March 25). 6 signs you’re ready to buy a home. Mozo - The money saving zone - compare and save. https://mozo.com.au/home-loans/articles/signs-youre-ready-to-buy-a-home