Welcome to your 12-month First Home Finance Action Plan.
If buying your first home is something you want to check off your To-Do list soon, then you've come to the right place.
So you want to buy your first home but your money situation resembles a mad dash to clean up before a rent inspection. It's OK, I can help with that.
Let's start by putting in a realistic expectation that tidying things up and saving up a deposit can take some time and effort, but less than you might think. The important thing is to make a decision to get started.
You're gonna need a plan.
12 months out - Review your current finances:
What are you spending now?
Are there services you are paying for now, that if you're honest with yourself are a bit of a luxury and you could divert that money to savings instead?
You might be surprised how much you're spending on monthly or regular direct debit commitments such as pay TV subscriptions, excessive phone plans, insurance policies that don't suit your needs.
So it's time to:
- Review your insurance coverage to check you are paying for the coverage you need, at the right price. Check your:
- Health insurance
- Car insurance
- Contents insurance (which you have already, right?)
- Income protection and other
- And business insurances, if you're self-employed...
- Double-check your data and phone usage and check with your phone provider about how you can save some money on your phone commitments. Check your contract end date, and any break fees before you think of switching and weigh up the costs of changing plan. You could save money on BYO phone plans.
- TV subscriptions - are you getting the best value for money? Is it bundled with your home internet/mobile phone account? Do you need it?
What are your bank fees doing to your balance?
Check your bank fees with your current lender - is it worth $5 a month? can they waive the fees for you if you tell them you're looking at other accounts? If your bank can't reduce your fees, then shop around. Some banks offer fee free account and access to multiple ATMs for online only accounts.
What do you owe?
Do you have a few credit cards, a car loan and a personal loan?
Lenders are happy to lend you for these types of loans, but a home loan, well that’s a totally different story.
To be in the best possible position for a bank to say "Yes" you need to have minimal personal debts (credit cards/personal loans). It's best to have no cards or loans, but if you have 6 or 7 debts at 12 months out from buying your home, now is the time to list all your debts and have a plan to clear one at a time.
This can be from extra work, selling off the assets/motorbike or extra car you have. But at the same time, you need savings as a deposit to buy your house or building package.
The focus would be to repay your debts and then start saving for your deposit. If possible though, I would recommend that you have a savings account receiving even a small amount of money on a regular basis while you pay down your debts, this shows financial maturity to the lender and helps you achieve two goals at once.
Savings – open a separate savings account for your first home deposit money. Remember, lenders need to see savings growing over time and don’t want to see money moving around say to sell/buy a car, just a steady growing of the balance over time.
9 months out - Cut up your cards
Repaid those credit card debts? Is the balance nil and the bank is still sending you statements? Then, why not give the bank a call and make sure the account is closed, the fewer credit accounts you have the better your chances of approval from a lender.
Just about all lenders ‘credit score’ applications, this means they score your application as part of the decision process to decide if they want to lend you money for your dream home.
The less personal debt you have when you ask for a loan, the more it will help with your credit score, and other aspects come into account including employment and residence history.
Do you have a savings account with a small overdraft limit? A bank can give you a $200 limit for ‘just in case’ it overdraws, saving you from treating it like a line of credit.
I would recommend cancelling the overdraft limit altogether though and being sure to have at least $100 in the account/watch the account closer so it won’t overdraw in future.
6 months out - Get a good team behind you
Talk to your mortgage broker and review where you are today in regard to finances. Reviewing your plans and goals at this time ensures you're on track to have in place a pre-approval in 3 months time.
You're talking to your broker about what your past 6 months have been like, paying off cards, paying off loans. They'll be so impressed.
It's a good time to find out your borrowing power based on your income, living expenses and expected savings.
I’m often suggesting a few details that will help ensure greater success with the lender at the time an application is sent in a few months. Time to check in on how your savings are tracking to closing or reducing the limit on any remaining credit cards.
Select a Settlement Agent or Conveyancer to advise you in the lead up to making an offer - they will have clauses prepared for you to include in the offer document and can be ready to act on your behalf better with some advanced notice.
Select a qualified and experienced Building Inspector now so that they can be ready to assist you when you find the home you want to make an offer on. They can give you the peace of mind to know that your home meets acceptable standards or is pest-free. Read more here.
The main benefit of being prepared with your team now is that they can give you information on their services and fees early so that these costs are not a surprise to you when you need to factor them into your borrowings or deduct them from your savings.
First-time homebuyers may also benefit from the confidence provided by having an experienced helper to find them homes that fit their requirements and budget, but this is not the same as asking friends or family to help out - unless they are active in the real estate market and have significant experience buying and selling properties. Seek out a Buyer's Agent if you think this service would be helpful for you to be confident doing things the first time - it can be nerve-wracking making the biggest purchase of your life and someone with the knowledge to save you from making mistakes or to properly negotiate on price on your behalf, with your interests at heart, can be well worth the fee they charge.
3 months out - Budget and bargain hunting time
Now is the time to arrange your pre-approval application, this is where your broker collects all the required information from you, including up-to-date payslips and savings statements and will provide recommendations for you on suitable loan products for your situation by comparing the current lender offerings.
After you are happy with a lender's offer, you will need to sign an application form and your broker will follow it up with them for the assessment and approval process.
The goal is that they reply with a pre-approval decision, this means that they are comfortable in providing finance so long as there are no changes in your circumstances or in bank policies prior to settlement.
A pre-approval is subject to many conditions as they need to check details when you find a property but is a good starting point that you have passed the bank’s credit score.
Time to go househunting and researching the market to find the property that suits your budget and requirements... Happy hunting!
Your pre-approval is in place, you know your borrowing power and maximum purchase price.
After looking at so many properties you have found the one you're keen to place an offer on.
But how do you do this? The selling agent for the house or land will prepare an ‘Offer and Acceptance’ contract. Your offer price is presented by the agent to the owner and your offer is either accepted, counter-offered or rejected by the vendor.
You need to carefully consider any clauses you might want to include in the ‘Offer and Acceptance’ contract, you'll need them drafted ahead of time so that they are ready to be dictated or typed into the appropriate section at the time you sit down with the sales agent to write up the offer.
If you overlook this and miss a clause that you wished to add, it is often too late after the vendor has accepted your offer.
But what clauses would you want to add?
Following are examples and if you have a settlement agent before you buy a property then they can help with the wording of these clauses or the selling agent will be able to help. But it’s important that you talk about what you want in the contract.
- A termite and pest inspection report
- A building and property inspection report
- Name of your settlement agent.
- Do you need to check with the council for any details about the property, there could be an extra clause relating to this in the contract.
- Finance clause
Congratulations!!! Your offer is accepted, what now?
Your broker will need a signed copy of the contract and will update the bank to change the application from a pre-approval to an application.
Your First Home Owners Grant application is then completed and sent to the lender.
The ideal outcome is that your receive ‘unconditional’ finance approval, and then the loan documents are sent to you for signing with your broker.
Please ensure you have builders risk insurance at this time or if you're building you will need the insurance once your house is complete.
If you'd like help with assessing your personal and financial situation, as well as comparing the loans in the market to see if you're truly getting the right deal for you, then call Bob Malpass now on 0431 862 136, email [email protected] or send us a message via our website for a quick response.
Thanks for reading,