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How to get financially ready to buy a home

Buying a home is not only a significant life decision, but a big financial commitment too. Considering most home loan terms last for 25 to 30 years, it pays to make sure you’re financially ready before you buy a house.

In this article, we take you through 8 steps to getting financially ready to buy a home.

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1. Determine if you actually want a house

Before you even start looking at houses, take it back to square one. Think a bit more about your motivations for home ownership, and if it’s the best decision for you.

If you’re renting, you might want to weigh up the costs of renting versus buying to see which one would make more financial sense. Or, if you’re planning to move cities in the near future, you might hold off buying until you’re ready to stay in one place for longer.

If you’re still dreaming of buying a home, great! It’s time to dig down deeper into your financial circumstances to prepare for the buying process.

2. Examine your current financial situation

Now it’s time to take a look at what your finances currently look like. Reviewing not only your expenses, but your debts, assets and credit score too, is important to get you ready to buy. This is because lenders will assess all of this information in your home loan application to decide whether to lend to you or not.

Do you have credit card debt, a car loan, or a personal loan? Debts like this impact a few aspects of the home buying process. Firstly, having existing debt can limit how much money you’ll have available to make home loan repayments.

Secondly, existing debt like credit cards and personal loans can impact your borrowing power in the eyes of lenders. Lastly, debt can worsen your credit score, which needs to be solid before you start the home buying process, as lenders will assess this to determine your creditworthiness.

In addition to trying to pay down your debt, making sure your lifestyle expenses are reasonable and having substantial assets (like money in a savings account, for example) in the lead up to buying a home will be favourable with lenders.

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3. Work out how much you can afford

Once you’ve reviewed your expenses, assets, debts and credit score, you can begin figuring out how much you can actually afford to spend on a house.

Using a borrowing power calculator is a good way to help you understand what you could afford to borrow, and therefore what a reasonable purchase price for a home would be.

However, it’s important to remember that there are more costs to a home than just the purchase price - don’t forget additional costs like stamp duty, conveyancing fees and Lenders Mortgage Insurance (LMI) if your deposit is less than 20%.

4. Consider your present and future lifestyle needs

Will you be changing jobs soon? Are you due for a promotion? Are you thinking of having children in the next few years? All of these and more are factors you might want to consider when you’re getting financially ready to buy a house.

This is because the type of house you buy might differ depending on your financial and lifestyle needs both now and in the future. So, it’s worth considering these before you jump into buying a one bedroom apartment when really a 3 bedroom house would be more suited to a growing family, for example.

5. Do your research

Doing plenty of research is key before you buy a home. It’s important to research the real estate market in areas you might be keen to buy in, as this can give you an indication of how much you can expect to pay for a property.

A property report can provide an indicative price estimate guide, as well as sales and rental history for millions of addresses in the country. It’s based on local sales and real estate trends, so you get an accurate, up-to-date idea of how much you might expect to spend in your ideal suburb.

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6. Save up for a deposit

When it comes to saving up a deposit for a house, generally the ideal number is at least 20% of a property’s purchase price. Having a sizable deposit saved not only demonstrates to lenders that you have good saving habits, but it also means you’ll avoid paying LMI. A larger deposit will also lower your loan to value ratio (LVR), meaning lenders will view you as a lower risk borrower.

However, we understand that a 20% deposit can be difficult to save for. Many lenders provide home loans for borrowers with deposits as low as 5%, however these can require the borrower to pay LMI.

First home buyers can also look into the First Home Loan Deposit Scheme that allows eligible borrowers to purchase a home with a deposit as little as 5%, and pay no LMI.

7. Look at government help for first home buyers

If you’re getting financially ready to buy your first home, it’s worth researching whether you’d be eligible for any government concessions or grants aimed at first home buyers. While they often differ by state in Australia, they can be a handy leg up into the property market.

8. Shop around for a good home loan

Part of being financially ready to buy a home is knowing what home loan products are out there that suit your needs when it comes time to buy. Once you have any idea of how much you can afford, comparing home loans is a valuable way to see what interest rates and deals are out there that are right for you.

Lendi can compare home loan products from over 35 different lenders, giving you a comprehensive idea of what you can expect when it comes to finding a home loan to suit you.

If you need help in getting your finances in order or with the home buying process, Lendi’s experts are available to help at a time that suits you.

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Got a home loan question? Just ask!

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: first home, first home buyer, deposit, saving, credit score, credit report, home loan, new purchase, lender, lmi (lenders mortgage insurance)

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Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856), a related body corporate of Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence 442372). We will never sell your email address to any third party or send you nasty spam, promise.
# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 35 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 35% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors.
*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
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