Rather than rushing out and looking at homes to purchase, take a moment and look at your financial position. Calculate how much you can borrow, what you can afford to pay each month and even consider getting home loan pre-approval. This will allow you to negotiate and will save you any disappointment long-term.
Let’s look at how you can effectively organise your finances.
Getting Your Finances Sorted
1. Pay off any debt – If you have any outstanding debts such as store accounts, outstanding credit card balances and small personal car loans, then pay these off. The less debt you have, the more you can borrow. Plus, lenders are more inclined to approve your home loan.
2. Reduce credit card limits – Large credit card limits can reduce your borrowing power. In fact, financial experts suggest that every $1,000 of a credit card limit equates to you losing $4,000 of borrowing power. So a credit card with a $4,000 limit will reduce your borrowing power by $16,000. Therefore, if you have a credit card with a large limit then reduce this and then apply for a home loan. You can always raise your limit at a later date.
3. Use a borrowing calculator – In order to calculate how much you can borrow use a borrowing power calculator. This will help you to calculate your living expenses and other costs. Include your number of dependents and then ascertain what you can borrow. You’ll then know what you can and cannot afford.
4. Compare home loans – Don’t use a lender just because you have used them before, or because you bank with them. Instead, shop around. Find out what’s available and compare home loan products, features, rates and fees. This can possibly save you thousands.
5. Calculate your fees – Know how much stamp duty and other expenses will cost you before you borrow. This will allow you to allocate enough money to cover these and to save you being shocked.
6. Try and obtain home loan pre-approval – Pre-approval gives you peace-of-mind and allows you to go home shopping with a higher level of certainty. Although full-approval often depends on the home you’re interested in, you can rest assured that you are financially able to purchase a property at a certain value.
7. Have a deposit – Make sure you have enough money or assets to provide a deposit of at least 20 percent. This will see you avoid paying costly lender’s mortgage insurance, which can add thousands to the cost of your mortgage.
Do you want to know more about how you can organise your finances? Contact eChoice, we can help you.
Written by eChoice