1. What’s your credit rating?
When you apply for a home loan, your home loan provider will assess your credit history. You could lose points for late bill payments and bad debts. It pays to see where you stand with a free credit report. This will detail your current position and give you the opportunity to correct any errors.
2. How much can you afford?
To get a good idea of how much you can realistically afford to repay, make a budget. Track your day-to-day living expenses and subtract them from your income. Don’t forget to allow for a rainy-day fund and other little extras, such as holidays or nights out.
Also, bear in mind that while interest rates are low right now, it’s possible they’ll go up in the future. Keep some room in your repayment budget to cover potential interest rate increases.
3. How much deposit do you need?
Home loan providers recommend that you save at least 20% of the purchase price for your deposit, although some lenders will accept as little as 5% deposit.
If you can’t manage a 20% deposit, you may be required to pay Lender’s Mortgage Insurance (LMI). And the smaller your deposit, the more you’ll need to borrow and the more interest you’ll pay in the long run.
4. What associated fees will you need to pay?
When you buy a property you may have to pay stamp duty. Rates differ from state to state, but are usually in the vicinity of 3% to 5% of the purchase price*.
You’ll probably need to pay a conveyancer to prepare your legal documents for the settlement process, and possibly a builder and pest inspector to check over the property before you sign the contract.
Meeting with a home loan specialist before you begin your search might be helpful, as they may be able to give you a rough estimate of these costs. You can then factor them into your budget and, if necessary, revise your budget or savings goal.
Applying for a home loan doesn’t have to be stressful. Build a strong credit history, save for a deposit, consider the associated fees and don’t overextend yourself. These are the first steps in the home loan application process.
You can put your budget figures into a mortgage calculator for a general idea of how much you could borrow and what the repayments would be.