Entering the property market for the first time presents many more challenges today than it did in previous generations. The cost of land has escalated while bank lending criteria has tightened, making accessing finance that much more challenging. However, there are a number of things you can do to increase your odds of signing that first home loan agreement:
1. Be realistic about what you ask for
A four bedroom split level in a leafy waterside suburb may be your idea of the perfect home however for most first home owners, financially, it’s an unrealistic dream. Take the time to crunch the numbers and come up with a figure that you can honestly afford to repay comfortably. When you go to the banks with a sensible figure in mind from the outset they’ll be more willing to work with you to organise finance.
2. Check your credit score
Save yourself time and potential headaches and check your credit score before you start talking to lenders. The government’s MoneySmart website has easy instructions on how to check your score for no cost and also how to amend any incorrect listings. Visit www.moneysmart.gov.au/borrowing-and-credit/borrowing-basics/credit-reports
3. Stump up 20 per cent
While it’s possible to access finance with 10 per cent deposit, if you can manage it, try to aim for 20 per cent. Not only will lending institutions look more favourably on your application, you will also save tens of thousands of dollars. One of the ways you’ll save is by avoiding Lender’s Mortgage Insurance; this fee can be $10,000 or more for mortgagees only offering security of 10 per cent, however, at 20 per cent this fee is waived. By putting down 20 per cent up front you also save thousands on interest over the life of the loan.
4. First Home Owners Grant
The First Home Owners Grant varies from state to state and usually only applies when you’re buying a new home. For some states, the grant is $15,000 or more for a new home so it’s worth looking into. Not all lending institutions allow you to use the first home owners grant as a deposit so be sure to check on this before you start your application.
5. Get a guarantor
In most cases a guarantor is a parent or other family member in a reasonably secure financial position who agrees to meet your loan repayment obligations if you’re unable to. Banks like guarantors and will look on your application more favourably. With a guarantor you’ll also avoid the Lender’s Mortgage Insurance fee (which can be $10,000 or more) and some lenders will even be happy to lend the full amount with no deposit down.