Buying your first home is a big step and you may not have a clue on where to begin. You may not realise it, but your first property purchase actually starts 24 months before you sign the contract.
It may seem like a long time, but this timeline could improve your chances of finding your dream property with a competitive home loan. Although it is possible to purchase a property in a shorter time period, it will depend on the state of your finances and how keen you are to get a home loan that will save you the most money.
24 months before
Your repayment history: Although it may seem like a long time from buying your first home, this is a crucial time because from this moment onwards, your repayment history will start to affect your credit report. In March 2014, changes to the Australian credit reporting system will mean that lenders can see the past 24 months of your repayment history.
So, if you know that you regularly miss bill due dates, now is the time to make a plan and fix your repayment strategies because even if you are one day overdue for a bill, it could affect your borrowing power.
Create budget: According to a recent study by Bankwest, it takes the average Australian first home buyer 4.2 years to save a deposit of 20% or more. Saving for a large deposit cannot only help reduce the repayment amounts; you can also avoid paying extra costs such as Lenders Mortgage Insurance which is charged when you borrow more than 80% of the purchase price. The sooner you start saving for a deposit, the less stress it will put on your finances.
Check your Credit report: As already mentioned, due to the credit reporting system changing in March, borrowers should make an effort to regularly check their credit report. This will give you an idea of where you sit financially and if you need to make any improvements. You can also check if there are any mistakes that have been recorded. By doing this earlier on, it will give you time to fix your finances or correct any mistakes with the company that recorded it.
12 months before
Check your credit report: It is a good idea to check your credit report every 12 months to ensure that your finances are on track and there are no errors recorded.
Save for a deposit: Now is the time to buckle down and get serious about saving for a deposit. This is a great time to start researching houses and see what price range you would be able to afford. Hopefully you have already put a budget in place to start saving, but as it gets closer to your goal date; you may need to implement a more intense savings plan. Take a look at our range of online calculators to create a budget and savings plan.
Review your debt: Credit cards, personal loans, HECS debt and other ongoing financial commitments could affect your borrowing power. So, although you need to save for a deposit, it is also important to reduce your debt as much as possible. If you have too many liabilities, you may not be approved for a home loan or the lender may apply certain provisions such as a higher interest rate. It is also important to note that when assessing your home loan application, a lender will use your credit card limit, not the amount you owe. So, even if you have $0 owing on the card, they will still include the limit. Therefore, if you have a credit card you do not use, it may be beneficial to cancel it.
6 months before
Research other professionals: There are several other professionals you may need to engage with during the property purchase process, some may include a lawyer/solicitor, pest and building inspector and a financial adviser and now is a good time to research and find the right one.
Organise paperwork: There are several paperwork requirements that lenders will ask for when you apply for a home loan, so to help move the process along quickly and smoothly, make sure you have the right information ready. This paperwork may include tax returns, bank statements, credit card statements, payment summary and payslips.
Start researching home loans: Before choosing a lender, you will need to look at your own needs and goals. Do you want to pay your loan off as fast as possible or do you prefer stability with consistent repayments? This will affect what type of loan is most suitable. Take the time to speak with different lenders and see who is the most knowledgeable and who you are most comfortable dealing with.
Research other pre-purchases costs: Many first home buyers get caught out thinking the deposit is the only thing they need to save for. However, there are several other pre-purchase costs that can add up to a significant amount of money. Some expenses include: stamp duty, legal fees, insurance, loan establishment fees and lenders mortgage insurance (if borrowing more than 80%).
3 months before
Contact lenders & organise pre-approval: It is extremely important to have a pre-approval before making an offer on a property. Many first home buyers make the mistake of making an offer on a property without getting a pre-approval first and then find out they cannot afford the property and have to pull out. A pre-approval will allow you to house hunt and make offers confidently as you can show that you already have your finances organised.
But remember; only apply for a home loan with one lender at a time. Although it may seem like a good idea to apply with multiple lenders, it can seriously damage your credit report. Every time you hand in an application form, they will conduct a check on your credit report, which will be recorded.
When you’ve found a home
Contact lender: Once you have found a home and want to make an offer, contact your lender as soon as possible. As you have already done the groundwork by obtaining a pre-approval, the lender can process the application quickly.
Contact lawyer & pest/building inspector: If you have been given a copy of the contract of sale, contact your lawyer/solicitor so that you can go through it together.
This is also a good time to have the property inspected so that if you find any problems with the property you can use this to negotiate the property price or the terms of the contract.
If you are looking for a home loan and want to speak to an industry expert about your options, our Lending Specialist team is here to help. State Custodians has some of the most competitive home loan products on the market and our experienced Lending Specialists can go through the options with you one on one. Give our friendly team a call today on 13 72 62 or leave your details here and they will give you a call.