By Warren Litterfair- General Manager, Peard Finance
It can appear daunting at first but with a little careful planning, owning your first home could be just around the corner.
There has been a lot of discussion in the media lately around first home buyers.
The general consensus is that it is harder to buy your first home than it has ever been before and in some ways this can be true. However, if you set your mind to it, buying your first home can be a very achievable dream.
There are quite a few pitfalls people run into which can hinder getting finance for their first home.
Let’s look at some of these issues and look at ways of avoiding them (or at least overcoming them) and getting into your house sooner.
The biggest issue for first home buyers is having a deposit.
Not so long ago you could get into your first home on a very minimal deposit. Times have changed now, but the fundamentals are still the same.
The best way to start is to make a plan. Work out how much you will need for a deposit based on 5 per cent of the purchase price and put that money aside regularly. And by regularly, I don’t mean once every now and again. I mean every week or fortnight. Tie it in with your pay cycle, make it a direct debit or credit the amount into a totally separate bank account. Preferably one you cannot access very easily. There’s no point getting halfway to your goal and then blowing it on a new car or holiday.
One area we are seeing a lot of growth is parents guaranteeing their children’s property purchase by offering their own property as security.
This can be a good way of assisting your children in getting into the market, ,something that’s well worth considering. If you decide to go down this path make sure you get independent advice to make you aware of the risks involved.
This next point is tough but it’s crucial. If home ownership is a priority for you then make sure it is a priority from a financial point of view. This is where you may need to make sacrifices. It could be as simple as not buying that extra coffee each day or something larger like not going on the next overseas trip.
This goes back to your savings plan. A coffee saving each day adds up and this could mean an extra $1,300 in your bank account at the end of the year. It might not seem much but if this combined with a couple of other savings measures could make the difference between getting into your home or not.
Next get rid of your credit. So this means credit cards, store cards and personal loans. Yes, we all need a credit card of some sort but turn it into a debit credit card.
Apart from savings, having too much credit is one of the biggest reasons people cannot get into a property. A bank will look at your total outgoings versus your income and if your outgoings are too high, you will not be able to get a loan.
Also keep in mind a bank does not just look at just how much you owe – they also look at how much your credit limits are. Do you really need that $20k limit on your credit card?
Make sure you pay your bills on time as this can ruin your credit rating if you don’t. This includes your mobile phone. Banks do not look kindly on anyone with a default on their credit rating so this is a very important point. If you are prone to forgetting to pay your bills then set up a direct debit with the provider to make sure they are always paid on time. Another impact on your credit rating is how much finance you have actually applied for.
We see people who have applied to many banks thinking they are doing the right thing but all they are doing is ending up with an adverse credit file. Your credit file reflects every application you have made, not just the loans you have taken out.
Buying your first home is one of the most exciting times of your life and these are just a few relatively easy steps you can take to help you into home ownership that little bit sooner.