So you’re ready to make the big move… you’ve been renting for quite some time. You feel good about where you are in life and you want to make that next big commitment. You want to buy your first home. Congrats this is exciting news! While there is tons of fun shopping online for the perfect home there are a lot of other things to consider. Adult things, but don’t worry! We have put it all together for you so you can go into your first home buying process feeling ready.
You should have all your ducks in a row ‘financially speaking’ before looking for a home. Banks are looking to ensure the funds they are lending are going to be repaid, so they are tightening the strings on how people buy homes. They will look at job history. If you jump from job to job, they are less likely to approve you for your top mortgage value and or may charge a slightly higher rate because they feel giving you money is riskier than someone in the same financial position that has remained in the same job for five years.
If you have a high debt to income ratio, it might be worth picking up a side hustle for a few months to help turn those numbers into a more favorable scenario for you and the lender. You should also pull a credit report to see how your credit score and report look. If there are any inaccuracies you can get them corrected, but takes time. You can also work on doing a few things that can increase your score while you work on your ducks.
You can use your resume as a start to keep track of all your employment history. Work your way backwards where you work now and go back 5-8 years if you can. If you can go back longer great! While you are working on your job history, it will be easier to remember where you lived if you moved from rental to rental frequently. You will want to provide a list of all of your previous residences.
Your employer can supply you with copies of your most recent paystubs if you do not have access to them. If you do not yet have a monthly budget it is good to have one of those written up as well. It is good not only for the potential lender to see, but if you haven’t made one before it can be very eye opening as to where you spend your money each and every month. There are a lot of great websites and apps you can use to track you monthly spending and even loans and credit. EveryDollar is one that is free and highly rated.
Your most recent tax records will be important when applying for financing. These documents validate all the other information you have provided, like where you worked, how much money you made etc. While standing in front of someone is clearly proof of your birth you also need to provide documentation that you were born in AU or that you hold legal citizenship here. If you are not a citizen you may be subject to more requirements to secure financing.
You will need to have access to your most recent bank, investment credit card statements. This will show outstanding balances, payments made and interest accrued or earned on these accounts.
Buying a home is one of the biggest financial transactions most people will ever enter into in their lifetime and as such lending institutions need to get the full scope of the individual they are lending a large sum of money to. While the bank would still have rights to the home in case the borrower defaulted on the loan. It is very time consuming and costly to repossess property and really that is the last case scenario anyone wants. This is however the reality of the lender, they see it all the time. Someone who was once a good payer is now no longer able to pay. So all of these hoops you are jumping through are to help not only get you the best interest rate on your loan, but provide some assurance to the bank that essentially you’re ‘good for it’. If you are buying a property to live in you actually get a better rate than someone looking to use the home as an investment property, so this is another reason you have to go through all the paper work and dot the I’s and cross the T’s.
Banks are doing less ‘risky’ lending so as long as you are not considered a higher risk you should be right as rain to still get that dream home you have been wanting. Many people the last few years have been able to take advantage of interest only payments for the first five years of the term and those loans are going by the way side as more traditional mortgage terms are coming back to have less risk on the bank’s lending portfolio.
You are ready to take the plunge but you need to be aware of the economy around you. Everyone is more keenly aware of the mortgage industry and interest rates since the 2008 Mortgage Crash in the US. Some believe that a fall out of the AU mortgage rates is coming, so that can do one of two things. Push you to move quickly to try and secure financing while rates are still low. Or it might push you back and have you wait it out to see if while the interest rates may go up, the price of housing may go down. It can be a win either way. You can either pay less for your home in interest now, or you can win by waiting and buying the home for less but paying more for it in interest during the term of the mortgage.
While we covered a lot of boring information, it is vital to having a good mortgage. Find a reputable lender and broker to help you with you home buying experience, and after you have signed the last document and handed the key to your very first home, let me be one of the first to say ‘Welcome Home!”