So you think you’re ready to buy a home or a rental property. We can say with almost total certainty that a house is the biggest investment you’ll ever make and the largest cheque you’ll ever write. Buying your first home is a huge step and it can be intimidating. Here are the six things you absolutely must do before buying a home.
Clean up your finances
The very first step to take before buying a home is having a good, hard look at your finances and cleaning them up. The key here is to be realistic… if your jaw clenches when you get your phone bill then you probably can’t afford a mortgage. You want to have savings and a solid amount of them even after you’ve paid a house deposit. If you have car loans, a HECS debt, credit card debt… pay it down now. Your finances need to be in good shape before you even think about home loans.
Credit scores
Sometimes ‘credit score’ can sound like a bit of a buzzword but it is a real thing. To fix your credit score you need to know what it is and where you’re at. In Australia, you shouldn’t have a bad credit score unless you’ve been contacted by debt collectors. That means those late payments on your phone bill and when your Netflix direct debit fails… doesn’t count.
But not having a bad score doesn’t mean it’s good. To gain a good credit score you need to have had a loan or financed something to prove to a bank that you have your finances together.
Work out what you can afford
So, this is the part where you work out what you can afford. The most commonly given advice at this point is: buy what you can afford now, not in ten, twenty, thirty years. You can’t see the future and the truth is you’re probably being optimistic. The rule of thumb with renting (but this can be extended to mortgage repayments) is that you should earn three times the amount of rent you’re paying. Every inner-city resident is laughing now, but it’s really reasonable advice.
When considering your deposit and mortgage repayments don’t forget to factor in: rates, taxes, utilities, insurance, and those extra things you forget your landlord foots the bill for, like water. Most banks have home loan calculators to help you out in this stage.
Save extra
You know when you’re a kid and you want something really bad, it’s like $20 and you decide to save your pocket money for it. You waited four weeks, collected the cash and you were good to go. The next step was strutting into the toy shop flashing your cash and dancing your way out, you now had one toy and $0 but it was all good because Dad would give you another $5 next week. That doesn’t really fly anymore.
Your banker will be way more concerned about your finances than the checkout chick at Mr. Toy’s Toyworld. They want to know you won’t be put your entire life savings into this deposit and that you won’t live week to week. Having at least three to six months work of mortgage repayments saved on top will make you a significantly better candidate for a home loan. Plus you’ll have extra in case the new house needs maintenance or repairs.
Apply for the loan
This next step is where the fun begins. You’ll need to prove your income, provide a detailed budget, jump through the lender’s hoops and put down a hefty deposit. Then just obsessively check back on your application’s status with UBank’s home loan tracker.
By Bob Gorman