“This Article was provided to us by our friends at hashching.com.au, Australia’s first online marketplace allowing consumers to access great home loan deals”
Buying a home is a big step in your life, and it is normal to feel a flurry of emotions. However, a little planning can go a long way in taking the stress out of the situation. You can navigate the real estate market with confidence.
Climb the real estate ladder faster by following these 7 steps before you start hunting for your dream home:
1. Check your borrowing capacity
It is best to know how much you can borrow before you start looking for homes. However, it isn’t prudent to borrow the entire amount lenders are willing to give you. Ideally, you should not be employing more than 30 percent of your disposable income towards servicing your mortgage. Therefore, in addition to determining your borrowing capacity, you must also calculate the size of the mortgage you can service comfortably before you apply for a home loan.
2. Review your credit
If you own a credit card or have a utility connection in your name, it is likely that you can pull up your free credit report online to review your credit history. This is important because lenders attach a lot of significance to your credit report while assessing your mortgage application. Any negative remarks on your credit file such as missed repayments or outstanding bills can stay on it for years. This could lower your credit score which could lead to a higher interest rate on your loan. Additionally, it could even derail your application in certain cases.
In case you do find yourself with a low credit score, follow these tips to improve your credit score before applying for a home loan.
3. Monitor your debt-to-income ratio
Your debt-to-income ratio is an important figure that lenders take into account while deciding your loan serviceability. The ratio identifies how much of your monthly income is applied towards the payment of recurring debts such as credit card payment, personal debt, mortgage repayments, car loan, etc.
A high debt-to-income ratio of over 40 percent means you are spending too much money to meet your debts and may not have enough disposable income left to meet your other monthly expenses. Banks often consider this to be a red flag and may not approve your home loan if you have a high debt-to-income ratio.
4. Save for a deposit
Having a 20 percent deposit can make your home loan journey much simpler as most lenders are skeptical of high LVR loans. Besides, you can also score a better rate and save money on lenders mortgage insurance if you have a sizeable deposit saved up in the first place.
If you plan to buy a house in the near future, it is a good idea to start saving money regularly for your deposit. Lenders are quite particular about the source of deposit and will scrutinize your bank statements for any irregular payments or transfers. In case your deposit amount has been gifted by your parents, do ask them for a letter substantiating the gift and let the amount stay in your account for a few months before applying for a mortgage to showcase responsible financial behavior.
In addition to the deposit, we suggest you save some extra money to take care of additional costs such as stamp duty, insurance, mortgage fees, etc.
According to Earl White of House Heroes LLC, a Miami cash home buyer, make sure you have leeway on your monthly budget to cover unanticipated costs. Debt-to-income isn’t simply about mortgage qualification. An unfortunate economic situation, such as job loss or medical expenses, could result in requiring a loan modification or even delinquency. A reasonable cushion on top of the required debt-to-income ratio helps ensure your home purchase is a successful investment.
5. Prepare your loan documentation
Most home loans require a great deal of paperwork, which could be quite cumbersome to arrange at the last moment. Therefore, it is recommended to keep your documentation handy to avoid any last-minute scrambling. Here’s a list of the basic documents that you’d need to apply for a home loan:
- ID proof such as passport, birth certificate, or driving license
- Two most recent salary slips
- Payment summary or Group Certificate from employer
- Letter from the employer mentioning the tenure of service
- Latest tax return
- Proof of other income
- Proof of assets and other investments
- Bank statements showing evidence of deposit and at least six months of genuine savings
6. Compare home loans
The mortgage market is highly competitive, and lenders are offering low rates and discounts to new customers to attract more business. Take advantage of this by comparing home loans from several lenders before choosing one with the best rate and terms for your situation.
Comparing home loans is easy. Visit HashChing, Australia’s first borrower-friendly online mortgage marketplace, to compare home loan deals from over 70 lenders across Australia.
We also recommend that you get your home loan pre-approved before you start looking for a home. Our mortgage brokers will help you apply for pre-approval and guide you throughout the application process. Speak to a broker now.
7. Seek help from a professional mortgage broker
As a first home buyer, you might feel at sea with all the real estate jargon flying around you. In addition to brushing up your financial knowledge, it is strongly recommended to seek help from a professional mortgage broker to simplify your home loan journey.
A mortgage broker is a financial expert who will negotiate with banks on your behalf to get you the best possible rate. Your broker will also help you understand your finances better and suggest home loan products in line with your financial situation and vision.
At HashChing, we have a growing database of Australia’s top brokers, offering on-demand mortgage services on a seamless, online platform. Speak to a mortgage broker by posting your query online and receive a resolution from experts, free of cost!
Still deciding whether or not to rent or buy a house? Click here to learn about renting vs. owning and learn what’s right for you.