After years of paying rent and living in old houses, it might be time to think about buying a new home. Buyers are making aggressive offers to stay in competition with wealthy investors, and with the first home buyers grant, young borrowers can still get approval for a mortgage. So if you’ve stopped eating avocado on toast and saved for a mortgage deposit, here are a few things to keep in mind.
Understanding the Market
It is very important to understand the market, especially if you are applying for your first mortgage.
The process of taking out a loan has become stricter and it has become increasingly important for a borrower to be financially prepared if he or she wants to apply for a home loan.
Requirements for First Mortgage Approval
Before applying for a home loan, you must gather the following information:
- Monthly income
- Monthly debt payments, including credit card payments, student loans, auto loans, etc.
- Credit score and any credit issues
- How much deposit you can make, and
- Value of the house you can afford to buy
Understanding the Monthly Debt Obligation and Income
Understanding your monthly debt obligation and income is the first step in applying for a mortgage. If you do not earn a fixed amount of income every month, you might need to provide additional income. For example, you might have to provide copies of your tax returns. If you have to make large payments to return your previous debt, such as student loan or auto loan, it might limit the size of your home loan. Applying for a loan can be stressful if you do it alone and don’t seek professional advice, especially if it is your first mortgage. Therefore, pay off your pending loans to avoid restricting the limit of your mortgage and speak to our team about how we can make it a stress-free process.
Monitor Your Creditability
You must plan your mortgage ahead of time and make necessary arrangements to maintain and improve your credit score. Sign up for credit services that provide regular reports to keep your credit in check. Take all the measures over a course of several months as it will allow you to be in a strong position when you apply for your first loan.
According to the estimates provided by FICO, your minimum credit score should be 680, yet the preference is given to the ones with over 700. A lower score means you will have to pay a higher interest rate. This can add up to thousands of dollars in interest payment.
Do not apply for another loan, especially a few months before sending out your home loan application. Even a small amount of new credit can raise concerns for lenders and they might seek a letter of explanation from you.
Make a Home Loan Budget
There are two things you need to bear in mind before applying for your first mortgage, i.e., the value of the house you can afford to pay off and the cost of repayments you can comfortably manage. A good rule is that your overall repayments, including insurance, taxes, and fees should not be over 35 percent of your gross salary before tax.
For example, if you and your partner earn a total of $100,000 a year, your combined payment should not be more than $2,917 each month. This is the maximum you should spend on a total housing payment every month. However, the recommended limit is 25 percent of the gross salary.
Determine the Value of Savings Needed for Down Payment
The next thing you should figure out is the amount of savings required for your deposit. When you apply for your first mortgage, expect the lenders to ask for at least 10 percent deposit. It is important to commit to the maximum before initiating a home loan process. Ask our team for advice so that you can find a loan that’s suitable for you and save you money.
Chat to our team now on 1300 088 065 or email Joshua at Joshua.Vecchio@HunterGalloway.com.au