If you decide home ownership is best for you and your family, it may be some time before you can apply and be approved for a loan. We at Area specialist Bayside can help put you intouch with someone to suit your needs.
You must meet certain requirements before banks and other lenders will approve an application for finance.
Being prepared for home ownership also means:
Before deciding that you’re prepared to buy, consider these factors:
Lenders want to know you’ll be able to afford your repayments over the loan period (term).
Most lenders consider ‘steady employment’ to be the last 2 years of consistent work. Most prefer that you’ve been with your current employer for more than 12 months.
Casual employees and self-employed people must give evidence of a steady income over several years.
Start collecting evidence of your income, such as tax statements and pay slips. If you’ve only been employed a short time, you may need to wait until you can show a steady income and stable work history.
If you don’t work but plan to use alternative income to make loan repayments, such as bank interest or a pension, you need evidence of this income. You may also need to show a savings pattern over 6–12 months.
When you apply for a loan, a lender orders a credit report on you from a credit bureau.
Credit bureaus keep records of people’s debts and how regularly they’re paid. A good credit rating means you have a history of paying your bills on time.
You don’t necessarily have a bad credit rating if you’ve made some late payments or exceeded your credit card limit once. However, a pattern of not paying accounts does affect your credit rating.
If you’ve never borrowed money from a financial institution or had a credit card, you can establish a credit history by documenting your regular rent payments to current or previous landlords, and your regular gas, electricity, internet and phone services.
Loans (e.g. personal loan, car loan) and debts (e.g. credit card accounts, store cards) may reduce the amount of money you can borrow.
You may have to clear or reduce these before lenders will consider your home loan application.
Usually you need a deposit of 5–10% of a property’s purchase price. By saving a larger deposit, you can increase your chance of getting your home loan approved.
If you save a 20% deposit and borrow less than 80% of the purchase price, you don’t have to pay mortgage insurance. This could save you thousands of dollars.
The larger the deposit, the smaller the amount you have to borrow and the less interest you pay. Over the loan term, a slightly larger deposit could save thousands in interest.
As well as a deposit, you need savings for other up-front home ownership costs, such as application fees, valuation charges, solicitor (conveyancing) fees, government fees, building inspections and pest inspections.
This could be approximately $6,000 on top of your deposit—more if it’s not your first home.
As a home owner, you’re responsible for maintenance and repairs. Your home could decrease in value without maintenance, and minor maintenance can become expensive repairs if they’re not checked and fixed regularly.
Therefore, you should budget carefully and save money for repairs and maintenance.
Before deciding to buy a home, ensure you would have income left after loan repayments and living costs (known as disposable income).
A lender can estimate how much you would be able to borrow and expected repayments based on current interest rates. From this, calculate whether you can afford to buy the type of house you want in the area you want to live and still have income left.
If you’re not happy with the loan amount you qualify for and the disposable income you would have, consider:
You could wait until your income increases or, if your debts are too high, aim to pay off debts quickly.
Properties can increase and decrease in value as economic and market conditions change. This is one financial risk of home ownership.
Your property could decrease in value, leaving you owing more than the property is worth. The value may decrease because of changes in your neighbourhood or community. These circumstances are outside your control but may affect the value of your property.
Interest rates vary in line with economic conditions. Interest rate increases lead to an increase in your repayments unless you have a fixed rate loan.
Personal challenges, such as divorce, illness, death, unemployment or bankruptcy, could leave you unable to meet monthly repayments.
If this happens, your lender can repossess the property and you have to move out. If you can’t make a loan repayment, contact your lender immediately to discuss your options.
Home ownership usually means a lifestyle change. Because home ownership usually costs more than renting, you need to make sacrifices to become a home owner.
A mortgage is usually a long-term commitment of 20–30 years, so you must understand and commit to the responsibilities of home ownership before you sign a contract.
Different generations and people with different lifestyles have different housing needs.
Some people prefer to rent because they have travel plans. Some people travel or relocate often for work, so they may not be able to own a home.
Think about the reasons you wish to buy your own home and consider whether it’s the right time for you and your family.