A step by step guide to getting your finances in order
The very first step towards homeownership is getting your finances in order. Once you have a savings plan in place and are in control of your expenses, you'll be able to work with a broker to find out how much you can borrow and determine a reasonable budget for your new home.
We've put together a guide to help you organise your finances prior to meeting with a mortgage broker.
1. CREDIT RATING
Securing finance to purchase your first home is arguably easier today due to banks utilising positive credit reporting.
This means that rather than looking solely at missed payments and debts you've failed to pay, the bank will make a note of the regular payments you've been able to maintain successfully.
This could include utility bills, rent or even credit card or car loan payments. If you never miss a payment, it demonstrates you are financially responsible.
2. DEBT
If you don't need debt, don't get it just for the credit rating.
If you already have outstanding debt, work towards paying it off as soon as possible, or look at consolidating your loans so that they are more manageable. It can be wise to engage a financial advisor to help with this.
3. CREDIT LIMITS
Many people have a credit card or a bank account with an overdraft – even if you have it but don't use it, or use it and pay it off promptly, the bank will still count your limit as a monthly expense.
To reduce your monthly expenses and boost your home loan borrowing power, it can be a good idea to talk to your bank about lowering your credit limits or cancelling any unnecessary credit cards.
4. DISCRETIONARY SPEND
Banks will often look at your monthly spending – that includes how much you spend on meals out, clothing, entertainment and other expenses above your regular living costs.
While rent and utility bills are non-negotiable costs, your discretionary spending can be reduced or kept to a budget.
Create a monthly budget, so it's easy for the bank to see how much you actually spend on a monthly basis. Otherwise, a few too many restaurant meals or expensive clothing items could overinflate your perceived monthly spending.
MIRVAC | FIRST HOME BUYER HUB
How do I go about buying my first home?
If this is a question you find yourself asking, use the Mirvac First Home Buyers checklist to learn the 11 key steps in the buying process for first home buyers.
