Going from buyer to homeowner might seem like a daunting journey, but as long as you’re prepared, buying your first home can be a smooth process.
Understand what spending Lenders look at when you apply for a home loan
Do you spend a lot of money on Uber Eats, have a high mobile phone bill or like to do a little (or a lot) of retail therapy? Your spending habits can have a negative impact on your loan application.
Lenders take a very close look at your spending habits to ensure you can afford the loan you apply for. They assess several factors like your income, credit score and any other debts you might have.
The best thing you can do is to exercise good spending habits for a number of months before you apply. You’ll need to:
- Demonstrate you are a habitual saver. Show lenders that you regularly put money into a savings account.
- Show that you live within your means by spending less than you earn. Reduce your reliance on debts like credit cards and car loans. Cut down on unnecessary expenses like food delivery or streaming services where you’re able to.
- Maintain stable employment. Show you have consistent cash flow that can be used to repay a mortgage.
- Reduce or eliminate the debt you owe. Each credit card or car loan you need to repay reduces your ability to service the mortgage and ultimately your borrowing capability in the bank's eyes.
You should also be cautious of your use of Buy Now Pay Later services such as Afterpay. It indicates to lenders that you are potentially spending beyond your means or are poor at managing your money. Not to mention it is easy to spiral into debt which can then affect your credit score. While it might not mean your application is rejected, it can affect the amount you can borrow.
Knowing your budget can get you into your new home sooner
Before you start your house hunt, there are a few things to consider. One of these key factors is looking at your budget and determining what you can comfortably afford. Knowing your limits financially helps inform your decision in choosing the right home loan.
Where are you looking to buy? Are you looking for a house or unit? Again, your budget will play a role in the answers to these questions.
So what makes a good budget? Here are three tips to organise your finances.
Track what you spend
All those morning coffees add up over a year. Start taking note of what you spend on a daily basis. Download an app, start a spreadsheet or use a good old fashioned notebook. Whichever way suits you, keeping a record of every cent you spend is the first step in creating an airtight budget. You might be surprised to find money that can be saved (or redirected) when you see your daily spend written on paper.
Organise your expenses
We all have regular payments - phone bills, water, electricity, gym fees, private health cover - the list goes on. When doing a budget you can plan for these bills and even put aside money for them. Have a look at your bank statement and take note of the regular outgoings. Having a clear understanding of what payments are due now and what’s coming up will help bring your budget to life.
Write it down
Budgeting isn’t about cutting your spending, it’s about identifying the areas that you want to spend and save money and making sure you stick to it - perhaps you want to pay off more of your home loan and spend less on other areas.
It’s important to actually write a budget - you’re much more likely to stick to something you can track. When you’re doing your budget. include both your expenses as well as a savings plan and make sure you revisit it regularly to make sure your budget is still working for you.
Are you considering buying your first home or upgrading? Many people have a goal amount in mind that they need to save before they meet with a finance broker - but the sooner you get a mortgage broker on your side the better. We can help you develop a realistic timeline to save your deposit, pay your debts down faster and work out how much you will be able to borrow. Get in touch with our Mortgage Specialist Paul today!
