How to Prepare Your Finances Before Buying a Home

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Buying a home is no easy task, but financial experts say preparation is the key to success for Australians looking to buy a property.

Here is the advice they gave to future owners.

Check your credit score

Canstar chief spokesperson Steve Mickenbecker said lenders look for a healthy credit rating to determine whether a potential borrower will be able to pay off their mortgage.

So, before you apply for a home loan, be sure to check your credit score, which you can do for free online through companies like Experian, Equifax, Canstar, and Finder.

If you have a low score, Mr. Mickenbecker said you should fix it before you apply for a loan.

“If there has been a dispute or an error, you [can] approach the supplier and [ask them to remove it from your credit score],” he said.

“But if you have a real problem… you might have some repair work to do over time. “

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Experity Director Clint Howen said preparing to buy a home is like getting in shape.

“If I knew I was going to be in a bikini contest or a model parade and needed to be in top form, you better know that two years more than a month… that’s it. is the same. [with finances]. “

Mr Mickenbecker said more people need to factor in stamp duty costs – which vary from state to state – before buying a home.

He said The new daily first-time homebuyers are usually eligible for discounts, but later home buyers must pay the full cost.

He said if a homebuyer has a down payment that is less than 20% of the purchase price, he or she will likely have to pay Lender’s Mortgage Insurance (LMI), which can be included in their loan.

LMI protects the lender against financial loss if the borrower fails to repay his loan and can cost anywhere from $ 10,000 to $ 15,000, according to Mickenbecker.

The exact amount will depend on the loan amount, the type of property the borrower is buying and how much he can put on deposit.

Mr Howen said homebuyers should also factor in transfer fees, application fees, appraisal fees and exit fees for people refinancing.

He said lenders monitor income and expenses, so potential buyers would have to create a budget and a savings plan.

Mr. Mickenbecker recommended calculating the loan repayments you are likely to make in the future up to two years before applying for a loan, so that you can put that amount aside each month.

He said it would prove to your lender that you can afford the loan.

“You can satisfy yourself [and the bank] you can do without… the extra money, ”he said.

Experts say potential buyers should save for more than a deposit. Photo: Getty

Take into account future changes in interest rates

Mr Mickenbecker said it was “absolutely essential” for potential home buyers to consider whether they will be able to pay off their mortgage if interest rates rise.

Start by checking the interest rates available today, he said.

Then use an online calculator to find out how much your 30-year loan will pay off.

To make sure that you can repay the loan if interest rates rise, he recommended determining whether you could repay the loan if your interest rate increased by 2.5 percentage points.

Get pre-approved before you search

Mr. Howen said going through the process of getting a loan pre-approved could help people avoid overspending on properties by giving them a better understanding of their situation.

“The main risk is that you are going to deposit a deposit at a location, and [it later] turns out you can’t borrow that money so you lose your deposit, ”Mr. Howen said.

“Pre-approval [and conditional approval] will help you figure out what you can actually afford.

Think about the location

Mr Mickenbecker said the location of your property could affect how much lenders will allow you to borrow if prices are volatile there.

“If you buy a three-bedroom house in the [suburbs]it is unlikely to cause you any drama, ”he said.

But if you want to buy a house in a small mining town or a small downtown apartment in cities like Melbourne, lenders will be reluctant to lend or might ask for a larger deposit.


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