While many buyers think of financing their property as simply building enough deposit to fund their purchase, in reality there is a lot more to the finance process, both in terms of the steps you need to take and the factors you need to consider in choosing a lending solution that supports both your situation and your longer-term property plans.
In this article, our finance team share five key tips to help first-home buyers improve and maximise their finance options for their property purchase.
Start preparing early
Whilst securing finance is the first step towards getting your foot on the property ladder, this step should generally start well before you apply for a loan. Budgeting is an essential part not just in helping you build a deposit, but also in ensuring you understand the demands your monthly repayments will place on your finances. Putting together a monthly budget planner that factors in your future repayments is a great way to keep track of your expenditure and spending habits while ensuring you won’t be overextending yourself financially by borrowing more than you can really afford or purchasing a property outside of your means. This historical expenditure will also be considered by banks when assessing your ability to service a loan, so getting prepared early by applying a disciplined but realistic approach could also be important to maximising your finance opportunities.
Get an understanding of how banks assess your borrowing capacity
Beyond their savings, many first-home buyers often aren’t aware of the additional factors lenders will consider when assessing their eligibility for a loan. As well as factoring in the required deposit, it’s also important to understand how your credit score, repayment history and existing outgoings could influence your borrowing capacity. For instance, banks will also consider factors such as debts and credit card limits in determining your eligibility to meet repayments and the risks they are taking in borrowing to you. One way to prevent this having a negative impact on your borrowing ability is to minimise unnecessary overheads such as high limits on unused credit cards to improve your overall credit rating. For more tips on how to build a strong credit score and avoid red flags with lenders, register to download our free finance eBook .
Factor in all the costs
Another factor that will commonly catch buyers out when looking to finance their first home is the associated costs that they need to account for in addition to their deposit. This includes costs such as settlement agent fees, building inspections, and (if you don’t qualify for first-home buyer concessions) stamp duty – all of which need to be paid at, or shortly after, the purchase of the property. As a first-home buyer, it’s important to sit down with your mortgage broker ahead of time to get an idea of the additional costs you will need to pay, as well as any potential concessions you may be eligible for, so you can factor this into your budgeting plan.
Don’t limit your research to one lender
As a borrower, it’s important to understand that each lender and bank has their own policies and methods when it comes to calculating serviceability, meaning your eligibility for lending products (and the rates and features on offer to you) will vary between different lenders. For instance, some banks have different policies when it comes to overtime or casual work, or may not lend to borrowers who are still in their probation period. Researching and comparing loans from different banks, which you can do via a mortgage broker, will be crucial to maximising your finance options and ensuring you’re selecting the best product and rates for your circumstances and financial goals.
Consider the longer term
In considering which loan product is best for you, it’s important to look at your property finance in the context of your longer-term plans as well as your immediate situation. Securing more favourable rates can be a crucial step in reducing interest and getting you in a better financial position to progress with your finance and property goals, but factors such as the loan features available to you can also play an important part in maximising cash flow. For instance, if you’re anticipating an increase in income or savings in the near future and want the ability to offset this against your loan to reduce interest repayments, not all loan types and products will facilitate this. As a borrower, this is where it’s important to work with someone who has a strong understanding of property-specific finance and the structures that support your longer-term plans.
Download our Beginner’s Guide to Property Finance
For more insights into the steps involved in securing finance for your property purchase, including further advice from our team on strengthening your financial position and maximising your options, register for a free copy below.