There’s more to buying a house than just saving a deposit. This 6-step guide will help you along the right path and make your planning more manageable.
Work out a target for your deposit.
The first step towards getting your own home is saving your the deposit. Developing a habit of saving and budgeting is the best way to get going. But it can be hard knowing exactly how big your deposit should be.
Take a look at the area you hope to buy in and check recent sale prices. If you get time, get along to a few open houses and on-site auctions, this will give you a good idea of what you need to aim for. In most cases the minimum deposit you’ll need is 5 per cent of the total purchase price of the property. This amount can vary depending on how much you’re borrowing and the type of loan you get. You’ll also need to have money for the fees and charges like stamp duty and lenders mortgage insurance.
Have a look at ASIC’s online saving calculator to see what you need to save each month over different time frames to work out how long it will take you to reach your goal.
Set your budget
If you don’t have a monthly budget already then now’s the time to work out exactly where your money has been going – and where you want it to go. Sounds simple but the budgeting process does all the heavy lifting when it comes to saving up for your deposit. It’s when you see how much gets spent on coffees, drinks and takeaways, that you’ll realise you can start to keep some money back each month.
If you have the discipline and the desire, an easier way to save money can be to set aside a certain amount or percentage of your weekly or monthly income and put it into your savings account. This can be something like ten per cent of what you earn every week, but this amount has to line up with your time frame to achieve your deposit.
Get credit ready for the lenders
When you are ready to approach a lender to buy a home, it’s really important that your credit history is in as good a shape as possible.
First, pay off any outstanding debts. Clearing your debts plus a history of regular savings in your bank account, combined with a good record of employment, will really help you secure a home loan in the future. It’ll also stop you paying big sums in interest; credit card debt eats up money, so clear it. And if you have more than one card, close them and cancel the account. Your credit card limits will get in the way of your borrowing capacity when you try to borrow.
Second thing: check your credit history. Companies that give credit (like banks, insurance companies and power companies) want to know if you have a good financial track record. Credit agencies collect that information to help those companies make decisions about lending to people. They gather information about your credit history and, on the basis of what they find, they give you a credit score – a number between 0 and 1,000. Most credit scores are between 300 and 850. The higher the score, the better your credit rating is. You can find your score for free online.
Have a look at your report and check for accuracy. If you see any mistakes, now is the time to correct them. If you’ve never applied for credit, you probably won’t have a credit score but most people have a credit history of some sort. If your credit history looks good when the time it comes to apply for your home loan, you’ll have a better chance of securing it. So in the time between now and when you apply, don’t fall behind on bill payments or add any new debt.
Get across the details
There are lots of small extra expenses and fees that are part and parcel of applying for a home loan. These have the potential to add up, so it's important to do your research into the details of any offer you look at. These charges may include establishment fee, legal fee, monthly administration fee and more.
On the plus side there are also things that can help. First home owners can be eligible for exemptions from government charges and may also be able to access certain government grants.
Decide if you need expert advice
Expert advice is another potential cost, but there are benefits in getting help. Whether it’s a buyer’s agent, accountant or real estate broker, their knowledge and specialisation could save you money in other areas – not to mention guiding you through some of the more technical aspects of buying a home.
When you’re ready to talk to someone about buying your own home, give me a call. I’ve specialised in lending for over 20 years and helped thousands of customers just like you.
You can talk to me about your home loan options on 0402 684 199. I’m here to help.