NEW YEAR, NEW BUDGET!

Getting your budget under control and your finances in order is absolutely essential to anyone looking to apply for a home loan. It is particularly important for first home buyers about to take the first step on the property ladder. Now the new financial year has kicked off, and you’re getting all your paperwork together for your tax return, why not take stock of your financial situation and plan your budget for the year ahead at the same time?

Here’s a few pointers to consider when trying to get financially fit for a home loan application…

Reassess your budget and get serious about your savings

When you apply for a home loan, particularly as a first home buyer, it is important to have a thorough understanding of your financial situation and savings habits. Lenders will want to see an established history of regular savings before they will give you their best rate on a home loan. For this reason, you should take a realistic look at your spending habits and create yourself a budget. This will ensure your savings will grow at a steady rate.

Work out how much deposit you’ll need. Set yourself a target

If you set yourself a savings target, you may find it will be much easier to stick to your budget. To set your target, first you’ll need to work out how much you need for your deposit. The amount of deposit required, will depend on the cost of the property you want to buy. It’s recommended that you have a deposit of at least 5% of the purchase price, however if you can possibly save 20% you’ll avoid paying Lenders Mortgage Insurance.

Make an accurate assessment of debts and ongoing expenses

Lenders assess your creditworthiness on the amount of money you already owe, your ability to repay debts, capacity to take on more debt and historical spending habits! Paying down any credit card debts or personal loans prior to applying for your home loan will improve your borrowing capacity and give you the best chance of loan approval. Even if you don’t have any debt on your credit cards, lenders will take into consideration the limit on your facilities count this as potential debt. In short, if you have several credit cards, it may be a good idea to cancel or lower the limits if you are planning on applying for a home loan in the near future.

Consider consolidating your debts

If you take stock of your debts and realise you won’t be able to pay them off anytime soon, it’s a good idea to look at ways to reduce your interest liability. Credit cards, store cards, short-term personal loans and cash advances all carry high interest rates and this can make them quite difficult to pay down. Getting your finances in order may mean it’s time to consolidate all your debts into one nifty repayment, usually using a loan that has a lower interest rate.

If you have quite a few expensive debts it may be possible to roll these into your home loan (if you have one), or perhaps a personal loan that carries a lower interest rate overall. This may save you a great deal of money on interest payments, which you could use to pay off your debts faster. It could also allow you to spread your repayments over time, making them more affordable.

Now’s as good a time as any!

A new financial year is a great time to get your finances in order and you never know, you may get a tax refund that could really give a boost to your savings efforts for a deposit for your home! Remember, we’re here to help you get your finances under control. Ideally save a big deposit and get into your new home sooner.

If you’re planning on applying for a home loan in the next financial year, don’t hesitate to give us a call today.

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