Are you saving with a goal to buy your first home? Here is what you should do before starting to make an offer to buy a property.
Start Saving that Deposit
Try to save 10%+ of the property you want to purchase. If you can save 20% even better (see lenders mortgage insurance definition below).
How do you do this? It is easier said than done but saving 10% of what you make is a good start.
What can you afford? (Be realistic)
This will be based on:
- Who is going to be paying the mortgage (you alone or with a partner)
- How much deposit you have
- Ability to pay the loan (or service the loan)
With the median (middle) house price in Sydney reaching $500,000+, for a lot of people this might mean looking at 1 or 2 bedroom unit.
Loan Calculators -Check out bank websites link www.ingdirect.com.au , www.westpac.com.au, www.commbank.com.au for loan calculators that will calculate how much you can borrow based on your circumstances. A mortgage calculator will calculate the repayments on a loan amount/interest rate.
Get a credit card
Sounds stupid but getting a credit card can help get a home loan. How? It shows that you can pay back a debt & gives you a credit rating. Even if you only put a few things on it and pay it off the next month. Just make sure you get a low credit limit (like $1,000-$2,000 – you don’t want to not be able to pay it off).
Get ready to apply for a home loan
To get a home, you will probably need a loan. To get a loan you will need to prove to the lender that you:
- Are a worthy credit risk
- Can pay the loan (called serviceability)
The easiest way to achieve these goals is by showing the bank:
- Income (i.e. payslips from your job/tax returns showing other income)
- Having regular savings (over 3 months)
- Providing evidence of the above.
Get your loan pre-approved
Meet with a mortgage broker or bank to work out what you can afford and how much you can borrow and get loan pre-approval.
To get a loan pre-approval your mortgage broker/bank will want to see documents (such as payslips, bank statements, etc.) to estimate if you can afford the home loan.
Once you have loan pre-approval and deposit sorted – you are now ready to start making offers on a property you like. In a future article I will write about the process of buying a home.
Lender – institution that is lending you the money. May be a bank (big 4 like CBA, ANZ or smaller like Arab Bank), credit union, or other financial institution. Mortgage brokers like RAMs/Aussie Home loans may also offer loans (these sometimes originate from banks).
Lenders Mortgage Insurance (LMI) – is insurance that will pay the lender if they make a loss on the sale of your property. So if you can’t make mortgage repayments and the bank sells your property but gets less than the loan amount – lenders mortgage insurance will pay the bank the difference.
This is perhaps the biggest rip off in the world – LMI is usually payable if your deposit is under 20% of the property purchase price.
Loan Pre-Approval – the bank will say that they will let you borrow a certain amount with final approval after they have checked out the property/checked everything meets their conditions.
Mortgage brokers – help source home loans for customers. They get paid by the lender out of the profit they make from your mortgage (i.e. the interest you pay). Mortgage brokers will typically get a fee when the loan starts and a trailing commission from your mortgage. As Mortgage brokers are paid by the lender –they could push you towards a mortgage that will pay them higher fees, however most seem to look out for the best interests of their customers.