Are you a potential first-home buyer looking to purchase this year? It is such a thrilling time, filled with excitement, possibility and curiosity. There’s nothing quite like the realisation that purchasing a home may be within your means… for the first time ever.
You’ll browse home listings, share them with your partner or wider family, get your finances in order ready to apply for a home loan, and already begin plotting out the interior design in your head.
However, buying a home is a significant financial decision that requires some serious forethought and planning. You shouldn’t rush into it, as a home loan is often the most considerable debt you’ll ever incur.
That’s why we’ve prepared this helpful article full of the top financial tips first home buyers should consider in 2024. Read on to learn more.
Crunch the numbers
When you begin applying for a home loan, the bank you’re considering should be able to give you an indication of the interest rates that are available to you. You can then use an online mortgage repayment calculator to figure out the amount of your repayments based on the loan amount and interest rate.
You should also use one to figure out your borrowing capacity based on your total combined income (if partnered), and your total monthly expenses.
You can use these valuable tools to begin to determine your financial position. This can help you narrow down the search for a suitable property and filter out homes that are too expensive for you to afford.
There is a range of these calculators available online; most major lenders will have one, but independent sources also provide them.
Check your credit score
Applying for a home loan will require a credit check and can impact your credit score. Your credit score is a rating of how “creditworthy” you are and can help lenders determine the possibility of you making repayments, whether they’ll likely be on time, or even defaulting on a loan. The higher the rating or score, the better your eligibility for a loan.
When applying for home loan finance, the lender will calculate your income and expenses and check your credit score. Several factors can impact your credit score, including if you’re successfully repaying other personal debts, such as credit cards and personal loans.
Another factor to consider is your employment type, as this can impact your lending eligibility. For instance, full-time employees on a steady salary typically can access finance more quickly than those employed on a casual basis or who run their own business.
If you have a stable credit history, it should not have a negative impact on you, but it’s worth knowing this when considering your finances.
You should obtain a free copy of your credit report and check your credit score before you begin the process of applying for a home loan. If the results are poor, you may have to do some work to repair it before doing anything else.
Save for a deposit
You will need a deposit or a down payment if you’re going to purchase a home. This means you’ll need to save a significant amount of money. The larger the deposit, the more money you’ll be able to borrow – depending on your income, as we’ve stated above. Most banks will require a 20% deposit at a minimum, as this will mean you avoid lenders’ mortgage insurance, which can be a significant expense that is bundled into your home loan that banks require if the deposit is less than a certain percentage compared to the property value.
There are some exceptions to the 20% rule, with some home-building schemes and government incentives available, meaning that you can purchase a home with as little as a 5% deposit. One scheme involves using your superannuation for instance, but it’s worth investigating what the various options are here. You can speak to a personal finance advisor to work out what’s best for your specific situation.
Cut back on expenses
In most cases, buying a home means larger housing payments than your current rental expenses. This means that you may have to reduce some of your household expenses in order to afford the repayments and interest fees. You’d be surprised at how you can trim some fat from your expenses.
For instance, subscriptions such as television streaming and online retail memberships can quickly add up over the year, as can take-away food, coffee and eating out.
Live entertainment, such as concerts, sporting events and other fun activities, can also be expensive. Owning a home often requires some sacrifice, mainly as you save up for a deposit.
As you get ready to buy a home, see what expenses you can eliminate to boost your savings. You’ll always be able to afford these things down the line as your situation improves with time and hard work.
In summary
This informative article has shared the top financial tips for home buyers looking to purchase a home this year. By now, you’re fully informed and ready to take the plunge. Making small sacrifices in the short term will be worth it in the long run as you prepare to own your very first property, so get your finances in order and get started!
