What to Know Before Buying your First Property
Buying your very own home is a large, thrilling step into a new phase of life. Between looking for the right location, bookmarking home decorations and saving for a deposit, purchasing your first property can be stressful, but approaching it researched and prepared can make the journey much more enjoyable.
If you’re a little lost on where to start, don’t worry! Here are some things you should consider when planning for your dream home:
How much savings do I need?
Before buying your new home, you’ll need to have a deposit of at least 5% of the property value to be eligible for a loan. You’ll also need to have enough cash to cover other costs associated with purchasing a home, such as stamp duty and moving costs. Some examples of costs you need to cover might include:
- Stamp duty
- Loan set up fees
- Settlement fees
- Inspection costs
- Home insurance
While you may be able to borrow up to 95% of your property cost, you will have to pay Lenders Mortgage Insurance (LMI) unless you have a deposit of 20-25% of the cost of your new home, which can be costly.
There are also several grants and incentives such as First Home Savers Account and First Home Owners Grant that can help make your ideal dream home come true.
What are lenders looking for in the application process?
Many lenders will ask to see six months of savings history. Consistent savings gives lenders the confidence to lend to you, and also helps you understand what you can set aside to pay off monthly mortgage repayments.
If the potential repayments on your dream home are more than you are currently spending on any rent or savings, then it’s worth considering how these repayments might affect your current lifestyle and whether you’re prepared to make those concessions. You might want to consider borrowing a smaller amount that you are completely comfortable with.
Lenders will also look at your credit history to understand what other forms of credit you have and whether you have a good history of paying bills on time. You can check your own credit score here to gauge how favourably they’ll view you. If it’s not as good as you hoped, you can see our tips on how to improve your credit score here.
The amount of credit you already have access to, even if you’re not using all of it, can affect how much you’re able to borrow. For example, if you have a number of credit cards and loans, lenders will add up the credit limits on all of them to gauge how much they are prepared to lend you.
If you do own multiple credit cards, you might want to consider ditching one or more. It’s also worth reducing existing debts if you can and consolidating these debts into a single loan before purchasing your home to turn those multiple repayments into a single repayment.
Should I use a broker?
Buying a home is a lot to think about, even if you’ve done it before. The benefit of working with a broker is that they will use their experience and market knowledge to find a home loan that suits your needs – and do all the legwork for you. Bear in mind that your broker may be able to offer more tailored recommendations if you can share your personal financial information, such as evidence of income, expenses and other financial commitments.
If you do have multiple credit cards and loans that are reducing your ‘serviceability’ or how much you can borrow, SocietyOne may be able to consolidate your debts into a single low-rate personal loan which may change how much you can borrow for your new home – add up your credit and get a rate quote!