Buying a house is incredibly exciting, whether it is your first home or your tenth investment property! But there are some definite hoops to jump through when it comes to being ready.
It is not as simple as choosing a house in an area that you like and handing over your money. There is a lot more involved. Especially if you require finance.
There are many different criteria to meet in order to obtain finance from any lending institution. And there are some ways that you can improve your chances of gaining finance from them.
Some of those ways are, maintaining a good credit score and financial habits, having the right deposit or financial support, and the secret weapon is… using a Mortgage Broker.
Let’s look into these in a bit more detail.
Maintain A Good Credit Score And Financial Habits
There is an art to maintaining a good credit score. It is more than simply meeting loan payments, there is a lot more that goes into determining your overall score. Paying your bills on time is a major contributing factor. The more inquiries a lender has to look into for late payments, the more it hurts your chances of being able to borrow.
Bill payments are not the only thing considered, any lender will look at your account conduct, the time you have been at your current job, the time you have lived at your current address, your current debt position, and your personal savings.
Account conduct: Lenders will look at your spending habits. They will not look favourably on consistent transactions at the casino, bars, fast food outlets and other frivolous spending. These all point to the fact that you may spend your money in other places, instead of making your loan repayments.
Time at employment/current address: The longer you have been at each, the more you are proving that you are responsible and loyal.
Current debt position: If you have a lot of payments that you are making for hire purchases, personal loans, or credit cards, then the Lender may worry about your ability to service the loan repayments on a house. Sometimes a debt consolidation loan will improve your chances as it can reduce your overall monthly repayment amounts.
Personal savings: While you can utilise the financial backing of a parent or family member, it can improve your lending chances if you have decent personal savings. This shows that you have the ability to save, so are a more reliable prospect.
The best advice we can give you is to be conscious of your spending habits. If you don’t need to buy it right now, then don’t. Your major focus should be on getting into a home, not on buying all the gadgets for it! Frivolous spending can be the difference between getting a loan and not getting one if a credit manager considers your habits to be extreme.
Having A Deposit, Equity Or Financial Backing
Building decent equity in your current home will put you in really good standing for any future borrowing. So basically, once you have equity, you are in a really good position for being able to borrow more money or to refinance.
The official party line is that banks will require a 20% deposit before they will lend you the money to get into a home. If you are looking to buy in Auckland, with the current property market, that would mean saving $200,000!
That is a considerable sum to save. The great news is that you may not have to save that amount if you have done well with your current debt position, account conduct, and spending habits. If you can prove you are a reliable prospect with these three things, then banks will be willing to lend with less than a 20% deposit.
Obviously, the larger your deposit, the better. But instead of aiming for a dollar figure, think about your affordable borrowing power. Most people will want to borrow as much as possible to get into a flash home. But if you buy a lower priced home, then you spend less – you have to borrow less and your deposit goes further.
Let’s refer back to the $200,000 deposit we mentioned above. If you bought a million dollar home then you would have a 20% deposit and an $800,000 mortgage. But if you were able to find a property worth $650,000 then that same amount of savings would become a 30% deposit, and you would only have a $450,000 mortgage.
Make sure you buy smarter. Get your deposit to work for you whether it comes from yourself, or from a financial backer.
Using A Mortgage Broker
One of the biggest things we can recommend is using a mortgage broker. Now we are not recommending this solely for the fact that we are mortgage brokers!
An advisor can review all of your options and see what is available on market. They have access to many major lenders – both the traditional banks and non-banks who may be willing to lend more. That means you can shop around for where you are going to get the best deal.
But before you even get to that point, a mortgage broker can give you valuable advice on your current situation. Do you need to source more of a deposit? Do you need to tidy up your spending habits? What areas do you need to work on to improve your chances?
With the right advice and work, a mortgage broker can get you into a home through a mainstream bank, for only 10% deposit because they know the right boxes to tick.
If you would like to find out how Mortgage Link could help you improve your chances of buying a home, then get in touch with us today for a free no obligation chat.