Top 5 tips for buying a house
Looking to buy a new house? Here are our top five tips for making the home buying process as easy as possible.
1. Set a budget based on what you can repay comfortably.
Don’t be tempted to spend up to your maximum borrowing power just because you can. Your borrowing power is the maximum amount a lender feels that you can repay based on your current circumstances. It doesn’t consider factors like interest rate changes or unexpected expenses. As yourself, if interests rates increased tomorrow, would you still be able to pay back your loan? What about if you had an unexpected bill?
Instead of looking at your borrowing power as permission to borrow the absolute maximum you can, ask yourself what you would feel comfortable paying.
2. Don’t forget to plan for the extra costs, like stamp duty and moving fees.
It’s easy when you first think about buying to forget that buying and moving comes with significant expenses. Fees like Stamp Duty, moving costs or Lenders Mortgage Insurance can make the process a lot more costly. You can use our Stamp Duty Calculator to find out how much you’re looking at paying in Stamp Duty.
3. Get pre-approval before you find your dream house.
You’ve been hunting through real estate listings, found a home you love and are planning to go to its open inspection. Before you go, get pre-approval.
Pre-approval, also known as conditional approval, means the lender has reviewed your financial situation and believes you can borrow the amount outlined. It isn’t a guarantee, nor does it lock you into using that particular lender, but it does give you a better understanding of your actual borrowing power and it makes you much more competitive buyer for real estate agents. Without pre-approval you’ll be competing with buyers who can put an offer on the table and get accepted quicker than you can.
4. Remember that online calculators are an estimate and not pre-approval.
Getting approval for purchasing a house is not always a straightforward process. First you generally use a tool like our Borrowing Power Calculator to get a rough estimate of how much you can borrow. These calculators look at the basics, such as your income and general expenses. They don’t take other factors into account, such as your spending habits or debt. Due to this, these calculators are not formal approval that you can borrow the amount calculated.
To get formal approval, you’ll need pre-approval (also known as conditional approval) and then formal approval (a.k.a. unconditional approval). These are a much more in-depth process where the lender will run credit checks and look at your bank statements, debt and spending. These are the approvals you need if you want a guarantee of how much you can borrow.
5. Work on improving your lendability.
Lenders look at many factors when assessing whether you’re a good candidate for a loan. While a lot of things might be out of your control here, there are some steps you can take to make yourself a more attractive borrower for lenders. These include:
- Pay off any buy now, pay later purchases and do not use these services (ideally ever, but definitely until you have unconditional approval for your loan).
- Avoid gambling. Even if you are spending a small, manageable amount, any spending on gambling can impact what a lender is willing to let you borrow.
- Avoid making too many credit applications. Too many credit applications in a short amount of time can impact your credit score, so space out any applications for things like personal loans or credit cards.
Need more advice? We can help you better understand your borrowing capacity, lendability and the process as a whole. Give us a call on 0421 323 708 today.