I’ve recently found myself in a position where I have been able to look at buying a house. But once I saved up what I thought would be enough for a deposit what is the next process. It’s not like many other commodities where you can just walk into a shop and buy one of the shelf at the listed price (although I’m sure many real estate agents would love it if you did). I thought I’d share some of my experiences and questions I asked which have led me on my journey thus far.
Saving a deposit.
Many banks and experts throw around the figure of a 20% deposit. This is usually the level at which most banks feel comfortable at lending you money for a mortgage. But this is not always the case. Sometimes it can be more, sometimes it can be less. Much of this will depend on the loan on which you apply for, so it is worth doing your research or finding a broker who can guide you through this process. While avoiding this is usually better from a repayments point, some lenders will let you borrow more, but then instigate a Lenders Mortgage Insurance fee on top of this loan. If your life circumstances force your hand, this might be an option worth considering.
There are some special circumstances with the First Home Loan Deposit Scheme which allows eligible first home buyers to purchase a home with 5% or 10%. This doesn’t incur the LMI fee, so could be worth checking into your eligibility.
Streamline your finances
Lenders will ask for a lot of information and at least 3 months of itemised income and expenditure statements. If you’re a self-employed then you’re going to need at least 2 years of statements. So, you’ll need to plan well ahead of when you think you might buy, which is often much easier said than done.
After your deposit size, Serviceability of the loan is the 2nd most important factor for lenders that will affect how much you can borrow. It’s also important to have credit card debt well under control or completely eliminated. Lenders see credit cards as a liability. Even though you might have a card you barely use with a limit of 10k, they see that as a 10k debt, purely due to the possibility you will access this line of credit. Experts will tell you get rid of these cards before applying for a loan and if you really need them re-apply down the track once you have secured your home.
Inspect the property
It’s important to go over the property thoroughly to ensure that it is free of any significant structural damage or defects. Imagine buying a house only to find out that there is a significant termite infestation, and half the house is about to collapse! Ensure you get both pest and building inspections. The onus is on the buyer to have this done, and it is not a risk that is worth taking.
When you view a property, look at all the fittings to establish the quality of the build. Look for cracks along the ceilings or where the walls meet the floors. Check the fittings and fixtures. Test the taps and water pressure. Anything that isn’t quite right will need to be factored into your budget.
Grants and Concessions
This area is probably the most confusing. This primarily consists of Stamp Duty concessions and the First home buyers Grant. What is on offer can vary between different states or if the house is pre-existing or new, and there is usually strict criteria around who is eligible and to what extent. Further to this these concessions and grants can change. There is always ample material available on this topic but it’s usually best to head straight to the source and visit government websites to ensure you have the most current information.
Getting the loan
It’s highly advisable to see a financial planner or a broker when it comes to applying for a loan. Applying for a loan unsuccessfully will hinder any of your future attempts to borrow. For example, if you ask to borrow 100k, and they only offer you 80k you probably won’t be able to proceed with your purchase. If you ask another lender, they will consider this previous application and likely offer you even less.
These brokers also have sophisticated calculators that can factor in many of the working parts that you might not consider (such as conveyancing, loan application and registration fees, legal expenses and pest inspection reports).
Once your loan application is in and you start looking at houses, you don’t need to wait for your pre-approval on finance to come through before purchasing, and you can submit an offer pending finance. Be mindful if you do that your deposit could be lost if your finance fails. So, don’t gamble with money just because you’ve fallen in love with a particular property. It’s best to wait until you have all your necessary paperwork and then be ready to snap up whatever suits your budget and taste!