Thinking about buying a property? Here, Lee Dittmer from HOW Property Loans shares her tips…
There is always a lot of discussion in the press about the state of the economy, the state of the housing market and interest rates. So much so that it can create fear and apprehension to even think about owning a property.
I’ll wait to see what happens to interest rates… I’ll wait until the next property boom is over… I’ll wait until I have more savings… And so the list goes on. There is never going to be the ‘perfect’ time to buy, however with some preparation and planning, you can be as ready as you will ever be.
This is probably the scariest part for most people. Where do I start? Mostly, you will start your research at the place where your friends and family have their loans, or where you have your savings. But you have to remember that everyone is in a different position, so what may be right for your friends may not be right for you. You don’t have to take out a loan with the bank that has your savings – they may not be the best option. You will have the loan for a long time, so make sure it is the right one for you.
Here are some tips that may help in preparing for your finance application:
- If you apply for a loan with a lender, they will do the credit check. Every time you have a credit check done, it’s noted on your credit report. If you do too many credit enquiries, some lenders will automatically decline your application. You don’t even get a chance to discuss it with them. Therefore, don’t lodge applications with multiple banks or mortgage brokers.
- Be prepared and make sure you keep copies of payslips, bank statements, credit card statements etc. You might be amazed at what some of the lenders want to see.
- Be patient. We know that this is the most important thing that is going on for you right now but, sadly, the lenders are assessing hundreds of loans a day, so it can take time.
- Interest rates are at an all time low at the moment. But be warned… one day they will go up! So make sure that, when you are looking at loan amounts, you won’t be over committed. Can you still manage when interest rates increase? What happens if you lose your job? What happens if you start a family? If you are purchasing an investment property, can you still manage if the property is vacant for a while? Making the most of the low interest rates will help you get ahead to protect yourself should these events occur.
- Know your numbers! We all know ‘budget’ is a dirty word, but if you don’t know how much you spend or can save, you could really struggle with a commitment like a mortgage. The bank doesn’t care that you’ve just had to get the car registered or had holidays, they want to make sure you can pay on time and that they aren’t putting you in a situation of financial hardship.
- Practice having the loan now. If you are renting, look at what your loan repayments will be. If your current rent is lower, then put the difference into your savings every month. It will prove to both you and the bank that you can afford the monthly repayments and it will help your savings grow. If you are purchasing an investment property, put away the difference between the repayment and the rent you will receive so that you know you can afford the shortfall every month. If you plan on starting or increasing the family, try living on one wage now, while maintaining the mortgage payments. Always prove it to yourself first.
- Try to do as much research as you can online. Start to get to know the phrases that are used. Unfortunately, there are still a lot of ‘professionals’ who like to speak in jargon so make sure you understand what is being said. Mortgages, Lines of Credit, Offset Accounts, Professional Packages, Full Doc, Low Doc, Redraw and LVRs. At the end of the day, you probably won’t care what it’s called as long as you have the funds for your new property!
There are some good websites that allow you to do comparisons, for example, www.canstar.com.au so check them out.
Practice having the loan now… It will prove to both you and the bank that you can afford the monthly repayments and it will help your savings grow.
Applying for the Loan
Believe it or not, the finance is actually the easy part. The lenders make their decision based on the ‘4 Cs’:
- Character of the applicant — that’s you
- Your Capacity to repay the loan and any other debts you may have
- Collateral — what security is the lender going to have? Do they like the property you are purchasing?
- Capital — have you got all the money you need for the deposit and to pay the associated purchase costs?
If you’ve done your homework and are prepared, applying for the loan will be a dream. This is probably the biggest tip I can give you… arrange your finance first!
This is what can happen: you finally find your dream home, have successfully negotiated with the real estate agent, and the property is yours. You haven’t applied for a loan yet, because you’ve played with some of the online calculators and you know you will qualify for a loan. Now you start your research and submit an application. You’ve got everything covered because you purchased the property ‘subject to finance’ just in case, and then you get the phone call advising you that your loan has been declined or they will only lend you a certain amount. You’re devastated. This can’t be happening. This is the property I want. I’ve been searching for so long… Don’t let this happen to you.
Speak to a finance professional, make sure you know your facts and figures, and make sure your credit history is sound. The emotion should be saved for the property – not the finance!
First published August 2014.