Are you financially ready to take on a mortgage and buy a home? Adelaide mortgage broker Hayley Walsh helps you weigh it up.
It’s an intimidating time to try to break into or re-enter the property market … staying in the game can be hard too, depending on your financial situation.
The housing boom followed by sharply rising interest rates has the potential to scare off many buyers.
When assessing whether you are ready and able to purchase, there are some key checks to consider.
These are the same ones the bank will ask you and analyse when assessing whether to loan you the money.
How to know if you can afford a home loan
First and foremost, consider your income.
How much you earn will have a massive bearing on how much the bank lends you and your ability to meet repayments.
Income is all well and good but if you are spending money as fast as you are earning it, your net savings are zero and that won’t get you a home loan.
Your lender will want to see records of everything you spend to ensure you have the savings plan, intent and discipline to service the repayment schedule.
It can be quite daunting sifting through records of every cent you spend and justifying it to a third party.
It’s a good idea to rein in your spending before applying for a loan to meet the requirements of a lender as well as boost your own savings and hence your deposit.
The size of your deposit will directly impact how much money a bank is prepared to lend you.
You can then calculate your LVR (Loan-to-value ratio), the value of your loan as a percentage of the value of the property.
Ideally, you want to have a deposit of at least 20% of the value of the property which would equate to an LVR of 80%.
If your LVR rises above 80%, you risk being charged Lenders Mortgage Insurance (LMI) to protect the bank against you defaulting on your loan.
Whether or not you need that can be negotiated and some lenders will waive this insurance up to an LVR of 85%.
Your credit score
If you’ve had bad debts, late credit card payments or even so much as an unpaid parking ticket, this is when it can come home to bite.
Your credit score also contains information about how often you have applied for credit, how much you have borrowed and whether you have paid back that money on time.
The lower your credit score, the more likely you will be deemed a bad risk.
If you are concerned about your credit score, you can order a free copy here.
Your borrowing power
Your borrowing power takes into account all of the factors above and is the amount of money a lender is likely to lend you.
Besides your income, they will examine your job security, your assets and liabilities, the size of your family as well as your plans for more children and any other dependents you have.
There are ways you can increase your borrowing power and they include:
Increase your earnings – Now is the time to ask for that pay rise or offer to do more shifts. If that falls through, consider whether you can make any more money in your spare time either from home or by picking up a second job.
Paying off existing debt – Banks don’t like lending money to people with debt, especially hefty credit card debt. Pay it off if you can.
Increase your savings – Do a household budget and be ruthless on what you no longer need. It might be morning coffees, buying lunch at work, eating out or pay TV subscriptions.
Shop around – Different lenders have their own criteria and will treat you differently. Calder Finance Broking can do the leg work for you and will help you find the best loan deal.
The cost is more than just the home loan …
Your deposit and interest payments won’t be your only expenses.
You’ll need to find money for stamp duty, conveyancer’s fees, loan fees, building and pest inspections, home and contents insurance and potentially lenders mortgage insurance.
There are plenty of mortgage calculators online which will help you determine what repayments you can then expect to make.
You shouldn’t be spending more than 30% of your pre-tax income on mortgage repayments.
If you do, you are liable to suffer mortgage stress which is when you begin to feel anxious about the size of your repayments.
Get advice today
Whether you are still trying to determine if you can afford a home loan or if you have one and are starting to feel overwhelmed by the size of your repayments, it is the perfect time to seek quality, professional advice.
Buying a house should be one of the proudest and happiest times in your life.
But it can also be incredibly daunting, especially in a challenging economic climate.
Calder Finance Broking are experts in the business of home loans and property finance in Adelaide and across South Australia.
We will not just prepare you for applying for a home loan, we will walk with you through every step of the process, securing you the very best loan deal available.
Or if you are starting to succumb to mortgage stress, we will find ways to relieve the pressure and investigate whether refinancing can ease your burden.
We pride ourselves on leading our clients into the future with structure, financial stability and confidence.
The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Taxation, legal and other matters referred to on this website are of a general nature only and are based on Calder Wealth Management’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.
Calder specialises in wealth management with a focus on advice, investment, sustainability, insurance and finance.
Written by Hayley Walsh from Calder Finance Broking, for more information please visit the Calder Finance website. Please note that Calder Finance Broking Pty Ltd is a Corporate Credit Representative of BLSSA Pty Ltd ABN 69 117 651 760 ACL 391237.