Our top tips for the home buying journey
When you apply for a loan, your provider will want to know how you intend to use the property. If you’re an owner occupier, you’ll likely face fewer loan restrictions and lower interest rates. Investors, on the other hand, will have more restrictions and higher interest rates, but will almost certainly be eligible for more money.
Lenders look what you owe vs what you earn. This is your debt-to-income ratio, and it is used to help determine how much you can realistically borrow. In fact, along with your credit score, it is a big deciding factor when applying for a home loan. Ahead of applying for a loan, make sure your debt-to-income ratio is less than 36% to help ensure you’ll qualify.
Pre-approval is an assessment of your finances to see if you qualify for a home loan, and how much you can borrow. It’s a great step to take before you start searching for houses to give you an idea of the price range you should be looking in. Plus, lenders can issue pre-approvals that are valid for up to 6 months. This doesn’t guarantee you’ll get a loan, but it’s a good first step.
Did you know the type of employee you are can affect your home loan application process? Self-employed borrowers may have some difficulty proving income and will likely have to apply for a low doc (low documentation) home loan.
Lenders need to know your current living expenses and financial obligations to gage how much disposable income you have. They will do this by using one of two methods: Household Expenditure Method (HEM) or the Henderson Poverty Index (HPI). The former is based on an index of basic necessities, while the latter is based on survey results from two parent, two children Australian households.
Banks assume that your credit cards are fully drawn when assessing your borrowing power. So, if you have a $3,000 credit limit even if you only use $1,000 of it, you will be assessed on the full $3,000. Decrease all of your credit limits to to increase your borrowing capacity.
While banks will consider all of your assets when assessing you for a loan, having at least 5% in genuine savings shows your financial commitment. Genuine savings is money that has been in your account for at least 3 months. Open an interest-earning savings account and top it up in the months ahead of applying for your loan.
A credit score is a number that lenders use to determine your eligibility for a loan. Simply put, it is a numerical summary of your credit history. The higher your score, the more likely you will be approved for a home loan. Find out more about credit scores and how to improve them.
When you’re looking for the right mortgage, remember that there are other costs involved in buying a house. Home insurance, stamp duty and legal fees are just some of the costs that you’ll have to cover when purchasing a new home.
Some suburbs will be more popular than others. Some areas will have more scarcity than others, and over time some land will increase in value more than others. Overall for strong, stable long-term growth that outperforms the averages, the inner and middle ring suburbs of our capital cities are the place to invest.
Low deposit house and land packages are a great way to get into the market if you’re struggling to pull together a 20% deposit. But be aware that many of these packages are only available in designated suburbs. Make sure you review available locations before applying for these packages.
Do you know what your borrowing capacity is? It’s the amount of money a lender is willing to give you. It’s determined by a number of factors, including your deposit amount, credit file, daily expenses, assets and income. So, before you get your heart set on a high-value inner city suburb, be realistic about how much you’ll actually be able to borrow.
Stamp duty is a tax paid to the state government when buying your property. It is determined by the price of the property, type of property it is and whether you’re a first time buyer. Generally speaking, first time buyers need to pay stamp duty, but there are exceptions. Learn more about stamp duty.
All Australian states offer First Home Owner Grants (FHOG) that apply to house and land packages. The benefit varies from state to state, so be sure to brush up on the terms and eligibility requirements before looking at new homes.
When working with a builder on a house and land package, remember that many display homes feature upgrades that cost more money. Double check with your builder when choosing your design and layout to make sure you understand what comes standard and what will cost extra.
While it’s important to stick to your budget when building or renovating a home, there are some areas where you shouldn’t skimp. Insist that your builders install the best insulation, doors and windows within your price range to ensure your home costs less to heat and cool.
When working with a builder on a new home or renovation, plan to spend more than you’re quoted. While many reputable builders will go out of their way to include an accurate quote on any job, unexpected costs are bound to pop up during construction. It’s best to build in a little padding when working on your budget so you can comfortably accommodate any surprises.
If you’re building a new home, you’ll likely need a construction home loan. These differ from regular home loans in that the lender doesn’t release the funds all at once. They are instead released in periodic payments directly to your builder, paid out at the completion of each stage of the project. When applying for a construction home loan, make sure you have a detailed plan in place so your lender will be able to determine the value of the construction and how much you need to borrow.
When building a new home, it’s important to resale value in mind. Even if you’r not planning on reselling your house, you just never know what the future might bring. When installing features, think about how appealing they might be to a potential buyer. Understand the average costs of homes in your neighbourhood so you don’t end up adding so many upgrades that you overprice your home for the area.
When it comes to borrowing money, it’s important not to over borrow. Not only can it lead to serious financial repercussions, but it also can mean not having enough money to put toward renovations, upgrades and actually enjoying your new home.
Getting a great floor plan that meets all of your needs is definitely at the top of the list when it comes to picking out a new home, but don’t forget to consider lifestyle. Are there schools nearby? How far are the shops? What’s local traffic like? Is there plenty of outdoor space to enjoy? These often overlooked aspects can make a huge difference when it comes to liveability.
When you’ve settled on a property, before making an offer, it’s worth looking up council regulations in the area to make sure you’re not going to be in for any big surprises should you wish to make any alterations to your home.
If you can get a great deal on a home that needs a little TLC, it may be worth some serious consideration. You could pick up a property for less that can be fixed up to add major value. Just remember that renovations are a lot of work and you should always make sure the property has good bones. You don’t want to get stung by major construction costs.