Are you a first home buyer? Are you looking to dip your toe into the property ownership pond? Wanting to settle some roots and raise a family?
If so, then we’re sure that the thing that has crossed your mind more than once is ‘how am I going to afford to buy a property?!’
At Dylan & Inns, we deal with a lot of first home buyers and know that finance can be a struggle, so our conveyancing solicitors have put together a few tips to help make that home loan application process a little easier.
Before making an application it’s a good idea to consider some of these things, as well as do a bit of research on how a mortgage works, including how a lender will assess your credit file, how much you can afford to repay in loan payments and how much of a deposit you need to save.
1. Your Credit History and Rating:
First up is your credit history and rating, as this is one of the first things a lender will look at before deciding to offer you a mortgage. A bank or lender will assess your credit history, so if you have late bill payments, or bad debts on your file, securing finance approval could prove difficult.
It’s worth ordering a copy of your credit history to check it’s health and make sure you sort out any bad debts.
2. How Much Can You Afford to Borrow?
Next you’ll need to consider how much you can afford to borrow. By getting an idea of your borrowing capacity, you’ll have a much better idea of the type of property and location you can afford.
It’s worth putting together a budget to work out what sort of repayments you can afford. Put down all of your expenses and then subtract them from your income to see what sort of health your finances are in. If you’re currently renting work out how how much extra you can afford to put towards a mortgage to get a foothold in the property market.
Most banks and lenders how mortgage calculators on their websites that will give you a general idea of the repayments when borrowing a certain amount, which will give you an estimate of your monthly expenditure.
Keep in mind though that interest rates will change, and probably in an upward direction since they’re still at such historic lows.
3. How Much Do You Need to Save for a Deposit:
And finally, the biggest consideration, the deposit. This is one of the biggest hurdle when it comes to buying a house.
Most lenders recommend a deposit of at least 20% of the purchase price, which for most home buyers is almost impossibly unaffordable.
There are lenders are there who will accept as little as a 5% deposit, but in most cases you’ll require a minimum 10% deposit in order to receive finance approval.
Unfortunately, when borrowing more an amount of more than 80% of the purchase price, you’ll need to factor in the additional cost of Lender’s Mortgage Insurance (“LMI”).
It also goes without saying that the more you borrow, the more you’ll have to pay in interest, which in the long run can cost you considerably more.
Getting your finances sorted and doing your research is the first step when it comes to buying a property as a first home buyer. It’s worth approaching a lender before entering into a Contract of Sale as you could get a loan pre-approved, which will make the whole buying process a lot easier.