Guide to Financing Your First Home

Getting your finances in order is one of the crucial steps along the road to home ownership; so before you start shopping around for a home loan, make sure your own ‘house’ is in good shape.

In order to qualify for a home loan in Australia, you need a tip-top credit history, a history of paying your bills on time and a low debt-to-income ratio. In addition to making sure that the applicant has their finances order, most credible lenders grant home loans to borrowers with secure employment and a stable rental history. So if you’re at a new job or working irregular hours in part-time employment, plan to lock in something stable.

Start by paying down your non-deductible debt (money used to purchase something for personal use,) including credit cards and car loans that you’re currently carrying. Entering the property market with little to no non-deductible debt will supercharge your borrowing power, and make you far more likely to get approved.

When assessing your home loan application, lenders want to confirm that you have sufficient income to make the monthly payments. If you have a considerable amount of existing debt, your ability to repay the mortgage will be smaller and this will have a negative impact on the outcome of the application. Even if you get approved, you will be able to borrow less. For all of these reasons, you need to pay off as much of your existing debt as possible before you apply for a home loan.

Now that your finances are in order, it’s time to get saving. Saving a nice, big, fat, healthy deposit is the best way to enter the market. Aim for 20 per cent, as this will help you avoid having to fork out for lenders’ mortgage insurance and give you some equity from the get-go.

The other advantage to entering the market with a healthy deposit is that it will show your potential lender that you can exercise financial discipline. While there are lenders who will give you a 95 per cent loan, they will put you at a disadvantage. Lenders’ mortgage insurance, plus the increased amount of interest you’ll pay over the life of the loan, will make buying your first home way more expensive.

In addition to the First Home Owner Grant, many of our state and territory governments also offer stamp duty/transfer duty concessions and incentives for first home buyers.

Make sure you know what is available to you in your state before you buy your first home, because you could be in for a few pleasant surprises.

You can use our clever little stamp duty calculator to research the transfer duty costs of your potential property. Plus you can check out the grants and concessions available to first home buyers in your state at finder.

While hiring a specialist to negotiate your mortgage may not be your idea of a good time, it’s in your best interests to befriend one. Why? Firstly, they’re experts when it comes to navigating the mortgage industry. And secondly, in many cases, they won’t cost you a red cent.

But what exactly is a mortgage broker? ASIC’s MoneySmart site describes a mortgage broker as someone who negotiates with credit providers on your behalf to arrange the best home loan for you.

The services of a mortgage broker are particularly valuable for first home buyers, as they will help guide you through the enigmatic world of home loan comparison.

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