Working out the finance puzzle for first home buyers
Show me the money! There’s no avoiding it, a big part of building a new home is financial. That’s life, it’s real, so let’s deal with it and go in with a good understanding of what first home buyers have to work with.
If there’s one area of the new home process that’s the most important to understand, it has to be finance. Especially for first home buyers. It really does pay to know what you’re getting into. So, let’s get into it.
Our best advice is to be real and be prepared. Do as much saving as you can, starting yesterday! Be realistic and not too ambitious and understand how your new home will affect your levels of disposable income. If you’re confident that you’re prepared for all these changes, then you’re ready to go.
Let’s see if we can help you get a clearer understanding of your financial position before we look at the financial options available.
How much can you borrow?
The amount you can spend on your new home is divided into your deposit plus your maximum loan amount. Some financing costs can be included in your loan amount so we need to subtract those to understand what you have available to invest in your new home. Now, let’s look at your deposit.
How much deposit do you need?
The more savings and assets you have, the better your ability to borrow. In most cases, the lowest deposit required will be 5% of the cost of the new home. That’s the minimum, a good healthy deposit considered to be 20%+.
If you are working with a minimum deposit, you will need Lenders Mortgage Insurance. This protects your bank against the higher risks associated with the lower deposit and allows them to lend you money with the lower deposit.
What affects my ability to borrow?
Banks and lenders look at a variety of factors to work out your repayment capabilities and financial security including:
- Total income of all people applying for the loan
- Savings and assets
- Existing debt including credit cards and loans
- Number of dependents (kids etc.) being supported
Some of the common mistakes people make when applying for new home finance include carrying too much debt on credit cards or other loans. This can mean your application will be declined, or if it is accepted, it might be at higher interest rates.
Pre-qualified & Pre-Approval
Pre-qualification gives an indication or estimate of the amount of money you could possibly borrow, based on the information you supply.
Pre-approval is more accurate because it is based on detailed analysis of your finances and credit history. With pre-approval, your loan has been approved already so you will have more bargaining power when you make your offers.