So you’ve decided that you want to buy a property but aren’t really sure where to start. Below is a basic guide of some tips and tricks I’ve picked up as a mortgage broker:
1. Income
When it comes to applying for a mortgage your income is the bottom line of your borrowing power. Your proof of income can be shown to the lender by providing:
PAYG: Last 2 Payslips
Casual Employees: Most recent assessment from the ATO
Self-Employed: ATO Assessments & Tax Returns for the past 2 years
When applying for a loan lenders like to see you’ve been with an employer for 6 months (excluding probation periods).
2. Expenses
With regards to your expenses, what you spend can make or break your application. Most lenders will want to see at least 3 months’ worth of statements to verify what you spend. Therefore, it’s a good idea to ‘spring clean’ your expenses when you know you’re looking for a property. So yes, unfortunately that means reducing your Afterpay spending, constant withdrawals from ATMs and switching the uber eats to a Woolworths grocery shop.
3. Ensure your Credit History is strong
I dare say that you aren’t aware of what your credit score is? This score however is vitally important to a lender as it shows them how likely you are to pay back your debt. The score is created by your behaviour such as how many enquiries you’ve had and what they’re for along with your repayment history.
A few key factors that can hurt your credit score are missing payments, having a large amount of credit available and defaulting on accounts. It’s therefore recommended to pay your bills on time, pay any owing debts and reduce credit limits that you currently have. Here is a link to a free Credit Report: https://registration.my.equifax.com.au/eligibility-reason
4. Genuine Savings
Similar to ‘spring cleaning’ your expenses, showing the lender over a period of time your ability to make genuine savings is important to an application. Genuine savings differs from regular savings sitting in the bank account, which for example was received by a gift, selling a car, etc. Whilst these regular savings are key to building up a deposit it’s important to show the lender that you have an ability to consistently save.
Whilst some people view rent as dead money it can be used in a loan application as genuine savings. This is because if you were to purchase the property you would no longer have this rent expense. Overall, it’s important to show the lender that you have the ability to save.
5. The Deposit
The biggest myth with buying property is that you need a 20% deposit. For a $500,000 house this would be a $100,000 deposit which, for most young people, seems a mile out of reach. However, you can have a deposit of as little as 5% which would be $25,000 but you would be charged Lenders Mortgage Insurance (LMI). LMI protects the lender in the event that borrowers can’t meet their mortgage repayments. There is no LMI charged if you have the 20% deposit so whilst this is the desired percentage, it’s not the be all and end all.
A few alternatives if you’re unable to get the 20% deposit but don’t want to pay LMI are:
Family Guarantee – this allows a close family member to use the equity in their property to provide additional security for your loan. For instance, if you have a 5% deposit the lender could use a family guarantee over the remaining 15% and you would avoid LMI.
First Homeowner Grant – This is an Australian Government initiative which allows first home buyer’s the opportunity to purchase a property with a 5% deposit and avoid LMI.
If you’ve decided that you want to buy a property and want to take the step forward, I’m happy to help. Feel free to call me at any time with your queries, no matter how big or small, on 0401 225 713.
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