Are you done with rental payments and want to make a move on the property ladder? Or perhaps you are considering purchasing a second property and becoming a landlord yourself? There are plenty of reasons why you might want to buy a property in Australia and take out a home loan.
If you have your deposit ready and your plan in place, you might be eager to sign on the dotted line. But wait! You shouldn't apply for a home loan until you have done the following ten things:
1. Clear your debts and clean your credit history
It can help to clean up any bad credit as much as you can before applying for a home loan, before the bank sees a poor history of financial management. It is true that making your repayments not only keeps you out of financial trouble, but it can actually improve your credit rating over time. There is nothing worse than going through a loan application process, only to find out that there is an old telephone bill from 10 years ago that you never paid, and the bank declines your home loan application. As mortgage brokers, we can do a light touch credit report for you, so you know how good or bad your credit history is. For a better chance of home loan approval, you should go into a financial arrangement such as a home loan with as little debt as possible and a healthy credit rating.
2. Talk to a mortgage broker
Going through a mortgage broker can give you a wider range of home loan options and products. If you were considering going directly to a bank that only offers a few different lending options, consider that you will typically have the benefit of more choice with a mortgage broker such as us at Mint Equity. We give you the advantage of over 40 lenders to select from, and we work with you to identify the right home loan package for your needs.
3. Review your employment status
Just how reliable is your income? If you are currently in casual or short-term contract roles, can you rely on this source of revenue over the long term? It is absolutely essential that you can display steady finances before you enter into a home loan agreement. For many people, you may need to talk to your employer about permanent or long term contract arrangements.
Casual vs permanent employment - which one is more financially stable?
4. Understand the market
It is important to know the market you are looking to purchase in. Do you have a good sense of what represents 'value', 'pricey' or 'a complete steal'? It all comes down to getting a feeling of realistic price tags, and what your money can buy. This requires you to have a scout around and see what is the going rate for a property of a certain size in a certain location. Don’t just look at properties for sale, but change your filter to see properties that have sold and sort them in most recent date order. That way, you’ll get an idea of what’s happening in the current market, not just what the property reports show, which can often be data that is 3 months old.
5. Check your grants and incentives
Do you qualify for a government grant or benefit? It is always worth checking which of these grants you are eligible for, and which you aren't. For example, many people think they can get the first time home buyer grant even though they've owned an investment property before; but actually, they can't. They set themselves up for disappointment as they won’t be eligible for the government grants and may have relied on those funds to form part of their deposit. A mortgage broker like Mint Equity will be able to advise what grants you might be eligible for prior to lodging an application, but it’s always good to do your own research. That way you don't miss out on what you are entitled to, or miscalculate what help you do qualify for.
6. Deposit saving
Does it sound like a no brainer? Perhaps it is, but nevertheless, it is essential to ensure that you have the necessary funds for a deposit before you apply for a home loan. In general, the average deposit for a home loan in Australia is 20 per cent of the home purchase price. However, through a mortgage broker such as Mint Equity, you could secure a home loan with a deposit for as little as five per cent of the home purchase price.
7. Reduce your living expenses
Goodbye smashed avocado…
If your living expenses are sky-high, that might not bode well for your home loan application. Remember that three months of bank statements will need to show controlled expenses for a successful application. Maybe cut down on the smashed avocado orders for a little while…
8. Get rid of gambling habits
If you like a little flutter on the horses or online betting, your personal expenses could be seen by the bank as unpredictable, or worse still, a risk of debt and ruin. Taking out a home loan is a financial commitment which you should approach with the utmost seriousness. If you have a regular gambling habit, you should seek to bring it under control before you apply for a home loan as it affects your living expenses which will in turn affect the amount you can borrow for a home loan.
9. Settle your ‘buy now, pay later’ credit agreements
If you are currently tied up to an 'after pay' or 'buy now pay later' arrangement for a product or service, you should endeavour to pay it off before you apply for the home loan. Such agreements are seen as a credit facility and will reduce your borrowing capacity.
10. Discuss your property strategy
What's your strategy in buying a property? You need to have thought the whole process through, including your 'end game', before you apply for home loans. Is this a short or long term hold? Do you plan to renovate and sell? Or perhaps you want to keep the home for the foreseeable future? These decisions will change your choices on a variable or fixed interest rate product, and so it is vital that you consider your plans early in the home loan approval process.
Talk to the experts. At Mint Equity, it's our job to help you choose the best home loan. For home loans tips on choosing the right package for you, see our home loan guide or call us on 02 4340 4847.