Tips for First Home Buyers

Do not change jobs at or just before applying for a home loan

While some things are out of your control, showing that you have been in same place of employment (and even residence) for a long period of time shows commitment.

If you are thinking of applying for a home loan, now is not the right time to become self-employed or quit your job. You want to show lenders stability. The lender will see this as a strong indication that your current set of circumstances, from which they are determining your suitability for the loan, are not likely to change soon after the loan is approved.

To be satisfied that you can meet regular mortgage repayments, lenders want to know that your income stream is adequate. One rule of thumb is that your income is deemed adequate if your repayments can be met from 35% of your income (obviously lenders will look at your particular circumstances more closely than this).

If the lender is satisfied that you can afford the calculated repayment level, then you’ve jumped the first ‘hurdle’ towards a successful loan application.

Another hurdle is to prove that your income level is secure. An applicant can demonstrate this by their continuity of employment history. If you have recently changed to a similar job after a long stint in a similar position, that’s fine. But if you’re on probation, or have undergone a major career change (from brain surgery to carpentry), lenders may want to wait six or even twelve months.

If you’re self-employed or on a contract, lenders take confidence in your future by looking at your past. Most lenders apply the rule of averaging the income you declared to the tax office over the past two financial years. However, in some instances further information relating to the business may be requested.

Get your Assets & Liabilities in order

Whilst you may not have a lot of assets or liabilities, it is always good to have a clear list ready for your lender.

An accurate way to work out exactly what your commitments are is to obtain a recent statement for all personal loans, car loans and/or credit cards you may have. The lender will almost always ask for up to date figures and paperwork to support the information you entered in your loan application so it is a good idea to have these documents ready.

It is advisable to not make any major purchases, such as a car, truck, boat or motorcycle that requires you to gain finance (a loan) in the lead-up to applying for a home loan. This will only increase your debt-to-income ratio and that’s something loan assessment officers will look closely at. For the same reason, it is best not to buy furniture or big-ticket items on credit at this time as it also will increase your debt and make it harder for the funder to respond to your home loan application with a positive answer.

Having a lot of debt increases your debt-to-income ratio. This is a key factor that lenders use to determine how much debt you can comfortably manage. Before you apply for a home loan, make sure that your credit card balances are low.

Refrain from using your credit to make purchases if you need to acquire a home loan. If your credit card balances are already high, start paying down the balances and keep them low.

Ensure you have a savings track record

Your deposit does not need to be huge. Once you have worked out how much you can spend on a house, it is a good idea to have saved a minimum of 5% of the value of the house, If, however, you are in a high income position or are purchasing a house later in life, it would be a good idea to have 10% or more.

In general, lenders like to see this money saved over a 3-6 month period. For first home-buyers or borrowers who have no equity in existing property, mortgage insurance may be required. Mortgage insurers want to know if you’re prudent with money or whether you tend to spend everything you get. For that reason, they prefer all borrowers who wish to borrow more than 80% of the value of their property to have genuinely saved at least 5% of the value of their property purchase.

Genuine savings include money in savings accounts, shares or investments (held for 3 months). They do not include first home-buyers grant, a gift from parents, proceeds from the sale of a car, or any other borrowed funds. While these additional funds can be part of your deposit, they are not ‘genuine savings’ in the eyes of the funder.

The capacity to save money is generally regarded as a good indication of a person’s capacity to manage money and is a strong indicator that the added expenses of owning a new home are more likely to be managed properly. Bear in mind that a bank will be increasingly careful as the loan-to-value ratio increases.

Some applicants are often disqualified from a loan, even if they can afford it, as they cannot demonstrate a track record of saving. That is because the money they’ve put forward as the funds to complete the purchase of their property has been given or lent to them. Lenders and mortgage insurers want to see a proven record of thrift to demonstrate the ability for repayment.

How do I get out of renting faster?
Making the transition from long time renter to proud new homeowner may seem difficult, even out of reach. But do not fear, with a few shifts in your strategy you could be holding the keys to your very own property in no time.

Talk to Us. You would be surprised at the number of home loan options on the market these days.

As there are several lenders to choose from – as well as hundreds of products, surely there is something to meet your personal circumstances.

Advisers are well-versed in these options as well as borrowing requirements, so it is best to talk it over rather than spinning around in circles visiting several different lenders and browsing various website.

This will also help you to establish goals, such as identifying saving targets and working out dates as milestones.

Research funding opportunities
Depending on where you live, chances are there are concessions available for your first home buyer loan. The federal and state governments have various incentive grants to help Australians make their way onto the property ladder.

If you need financial help with securing a loan, you may be able to access the equity of a willing family member or friend to help you get there.

Another option may be to use rental payments as proof of genuine savings. While only certain lenders offer this solution and is subject to borrowing criteria, it may be something you would benefit from.

You may also wish to establish a disciplined budget to help you save for a deposit – the more you have to offer at the beginning of the transaction, the more likely you will pay off the loan faster later.

What’s the max amount I can borrow?
One of the most frequently asked questions when it comes to securing a home loan is how much can I borrow?

The answer to this question of course, varies between lenders and applicants. Since everyone has a unique financial situation, it is difficult to estimate borrowing capacity without some specific details about the borrower in question.

However, there are some common requirements among a broad spectrum of lenders and there are also some useful tips you can follow to maximise your borrowing capacity in the eyes of lenders.

An easy way to get started is to input your details into an online mortgage calculator – this can give you a quick estimate of the amount of money you are able to borrow, based on a few factors such as income and expenses.

To get a more detailed account of your financial situation, it is best to speak to a trusted Mortgage Broker.

As a home loan professional with in-depth knowledge of the expansive range of products and lenders on the market, at APHL we are well-placed to offer you targeted advice about which option will best suit your personal situation.

In order to give yourself the best shot at securing the amount you desire, there are a few things you can do.

1.    Close any inactive accounts – even if your balance is zero, the lender will still count this against you.
2.    Pay off any unpaid debts and consolidate open lines of credit.
3.    Set up a realistic budget for yourself. A savings plan will not only help you in the application process, but will prepare you for paying mortgage repayments each month once you move in to your new home.
4.    Talk to us any financial areas you may need to address before applying for a loan.

How do I save for my home loan deposit?
Have you had your eye on your perfect home for some time now? Do you day dream about making it your own? If so, it sounds like it’s time for you start thinking about your home deposit.  Then you can go on to secure the home loan you’ll need for your dream future.
It can be a challenge to save up enough money for your home deposit, but a few minor changes to your lifestyle can do the trick.

Sell sell sell!: Firstly, sell anything you don’t use or need. Perhaps you can get by catching the train or bus and sell your car, or even sell your exercise equipment and go for a run outside instead.

Cut out that daily cup of coffee: You’d be surprised how much money you can save simply by skipping a few coffees and Friday night dinners out or Sunday shopping sprees. Curb your spending habits by just a little and watch the savings grow.

Clear out your closet: Sell some of your smaller belongings online. Clothes you haven’t worn in a long time, old DVDs and CDs or games. While you might not make mega-bucks from this, every bit counts.

When you do shop, shop smarter: For those things you really need, keep an eye out for sales and discount deals. If you need a new outfit for that special occasion, always look on the sale rack – it’s more than possible to find fabulous clothes on a bargain budget! Try to do your supermarket shopping in the evenings after dinner, so that you are not hungry and therefore don’t by lots of snacks. At night, often breads and other perishable goods will be discounted because they need to be sold that day.

Every dollar will get you closer to paying that home deposit, so make goals and save one dollar at a time.

Buying a home is one of the most significant commitments Australians make in their lifetime, so it’s important to do it right.

Remember, we can help you through the process of securing a first home buyer loan.

Published On: 11 March 2021