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Buying a house remains a coveted dream for many people in Australia. But are you ready to buy your first home?

With many low-interest home loans available in the market, the announcement of several schemes in the federal budget to improve housing affordability, and the First Home Owner Grant administered by different States in Australia, there is a lot going on for the first time entrants into the property market. But just because most of your friends and neighbours own a house or plan to purchase one in the near future, does it mean that it is the right time for you to jump on the property bandwagon as well?

 

ready to buy first home

 


Ask yourself these five questions to make sure that you are ready for home ownership:

1. Can I afford to buy a house?

Home ownership is not just about monthly repayments. From the costs of setting up the loan to the closing costs to insurance payments, taxes and utility bills, there are a host of other expenses that must be catered for.

However, very often, people tend to ignore these costs and buy much more house than they can afford, which leads to financial stress. 

As a first step to buying a property, do an honest follow up on your finances and see where you stand. It helps to prepare a household budget that will not only enable you to cut down on extra expenditure but also save more money for your home loan deposit.

You must also think twice before buying a house in case you intend to switch jobs or take a break from work in the near future.


2. Do I have enough savings for a home loan deposit?

In general, it is advisable to save 20 percent of the property’s price as a deposit for your home loan. Thus, for a $600,000 property, you require $120,000 as a deposit, which is a tall order for many. 

Apart from saving up a deposit, use an online calculator to check your monthly repayments to ensure that you can afford to service the home loan. Ideally, your mortgage repayment should not account for more than 30% of your monthly income.

If you do not have the adequate amount of money for a home loan deposit, it is possible to ask your parents to guarantee your home loan. Some lenders will lend you up to 90 percent of your property’s price, but you will have to pay Lenders Mortgage Insurance that will add up to the cost of your home loan (Read more about low deposit home loans here).


3. Do I have too much debt?

You take home a decent enough pay-cheque at the end of every month; you do have a car loan and credit card debt, but you have never been late in your repayments; you are comfortably off with enough money left each month to make the mortgage repayments for your future home…surely, you think you are perfectly placed to take a home loan. But you’d be surprised to know that lenders may think differently.

Lenders take into account your existing debts while deciding your borrowing capacity. How much percentage of your gross income goes towards your existing debt, or your debt-to-income ratio, is an important factor affecting your home loan application.

Did you know that lenders might refuse your home loan application if your debt-to-income ratio is over 43? Thus, you must consciously work towards reducing your debt before applying for a home loan. Read more about debt-to-income ratio and how to reduce it.


4. How good or bad is my credit?

Your credit score is like your financial report card that lets the lenders know of your past financial performance, and whether it is safe for them to lend to you or not. 

A low credit score is an indication of a financial problem or bad debt and will help the lenders make up their mind against you. In order to maximise your chances of approval, pull out your credit report for free from a website such as Equifax before applying for a home loan. Go through your credit report thoroughly and dispute any discrepancies immediately to get them off your file.

Remember, a single missed utility payment will stay on your file for five years. Keep your credit score high by following these tips; it will increase your chances of home loan approval manifold.

At HashChing, we understand that sometimes people fall into bad debt due to adverse circumstances they have no control upon. Everyone deserves a second chance, and our expert brokers can lead you to that second chance by helping you access bad debt loans from specialist lenders. Contact an expert now.


5. How long will you stay in the house you are planning to buy?

Considering the costs of owning a property, it makes sense to buy a house only if you intend to stay in it for at least 3-5 years. If you are in a kind of job that requires you to move around and are likely to sell the house within a year of purchasing it, you might incur a loss as there would hardly be any appreciation in the property in such a short span of time. Of course, you could turn your home into a rental property as you move to another town, but be prepared for taking on the extra responsibilities of managing a rental property in that case.

So folks, that brings us to the end of the list. Did you answer in the affirmative to each of the five questions above? Congratulations! You are well positioned to buy your first home. Set the wheels in motion by comparing home loan deals online or contact a mortgage broker to guide you with the financing of your first home

While there is no doubt that buying a home is one of the most popular wealth creation strategies in Australia, purchasing a home is one of your biggest financial decisions, and it must be a well thought-out one. If you think you are not yet ready to be a home owner, there is no harm in renting a house if it suits your lifestyle and fits well with your financial goals. Alternately, you could explore the option of rentvesting and use it as a strategy to buy your own home, eventually. Read more about rentvesting here.

 

By Vidhu Bajaj
HashChing Content Writer

 

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HashChing is helping Australians by providing access to the pre-negotiated home loan deals. Obligation free consultation with one of our partner brokers might save you time, hassle and money.