How to plan your finances before buying a home

Whether you’re buying a one bedroom apartment or a family home, there’s more to consider with your personal finances than the size of your deposit. In fact, the financial decisions you made years ago – good and bad – can impact your chances of being approved for a home loan.

Here are six key factors to consider about your finances before buying property:

 

1. Credit history

Your credit history and credit score are a fundamental way lenders assess your ability to manage debt and repay your mortgage. Typically, lenders favour borrowers with a good to excellent credit score, as this offers a lower level of risk you may default on the loan.

Credit products, such as existing loans or credit cards, as well as utilities, like energy bills and phone plans, will appear on your credit history. If you’ve missed a phone bill repayment and it’s been overdue for over 14 days, for example, this may be reported on your credit history and lower your credit score.

If you’ve never checked your credit report, it may be worth going through your credit history with a fine-tooth comb. You can request to view your credit score from reporting platforms like GetCreditScore or CreditSimple. Look for any errors and consider improving your credit score before applying.

 

2. Renting and leases

If you’re looking to buy your first home, chances are you’re either living with family or renting while saving up a deposit. How your lease is structured, and whether you’re living at home will impact your loan application.

Your rent payments made before home purchase will either be considered:

  1. Part of your income towards your mortgage if you will be an owner occupier, or
  2. Part of your ongoing expenses if you will be an investor.

If you live with flatmates and are the only tenant on the lease, your home loan lender may assume you are responsible for the full rental payment – not just your share you split with your flatmates. If you are not on the lease, the lender will request you to advise how much your portion of the rent is. You may need to update your lease before you apply for a home loan to reflect accurate rent payments.

Also, if you’re living rent-free with family, your chosen lender will still include an assumed rental payment into your loan application. This is known as ‘notional rent’, and generally sits around $650 a month, or $7,800 a year.

 

3. Joint applications

If you’re looking to purchase a home with another person, it’s important that you have frank conversations about your financial health before proceeding. It can be uncomfortable, but who you choose to apply for a home loan with matters.

Both of your finances and credit history will be assessed in the home loan application. If you cannot meet mortgage repayments on your own, having a second person on the loan responsible for payments may boost your chances of approval. But, if that person has a poor credit history, large amounts of debt or any other potential risks, it may hurt your chances of loan approval.

4. Genuine savings

Before you purchase your home, your home loan lender will enquire as to how you saved up for your home deposit. How you accumulated your deposit is typically divided into two categories: genuine savings and non-genuine savings.

Genuine savings is the process of gradually saving a portion of your income over time, such as $500 a month into a savings account over 18 months. Non-genuine savings is anything outside of this for a deposit, such as an inheritance, a gifted lump sum, tax refunds, sale of an asset and more.

While home loan lenders will generally approve any home loan deposit type, whether from genuine savings or non-genuine savings, they may still expect to see some level of regular savings in your personal finances. Showing you are able to save a regular portion of your income over at least three months can demonstrate a higher level of financial responsibility to a lender.

If you are purchasing a home with a deposit from non-genuine savings, it may be worth bolstering your application by saving a portion of your income over a few months in the lead up to your home loan application.

 

5. Cut down expenses

When you apply for a home loan, lenders will request a copy of your bank statement as well as proof of income. This is to assess your income and your regular expenses and determine if you can comfortably service mortgage repayments.

Lender’s will classify your expenses into a number of categories, such as entertainment, medical costs, utilities etc, and, if they occur on a regular basis, may be subtracted from the amount you can borrow for a mortgage.

This means that if you’re a fan of online shopping, or regularly order takeaway food, you may want to cut the habit in the weeks or months leading up to your loan application. Reduce your frivolous spending as much as possible to increase your chances of loan approval or even borrow more with a mortgage.

 

6. Planning for rate hikes

It’s not just your home loan application you’ll want to plan for, but your mortgage repayments as well. Currently, we’re experiencing the lowest interest rate environment in recent history. While this is great news for new homeowners at the moment, it’s inevitable that interest rates will fluctuate over the next 25-30 years of your home loan.

It’s always recommended that you do not take on more debt than you can manage, with “mortgage stress” colloquially considered spending more than 30% of your income on your repayments. But you may also want to plan ahead and ensure you’re able to afford your repayments at a higher interest rate – at least 2-3% higher.

Use a Mortgage Repayment Calculator to discover how much greater your monthly repayments may be at a higher interest rate. Then, consider adjusting your budget and reducing your expenses to accommodate any future rate hikes to reduce your risks of missing payments.

You may even want to consider making additional repayments on your home loan as if you were already on a higher interest rate to reduce your principal owing. This will help reduce your monthly repayments, cut down the amount of interest charged over the life of your loan, and may even shave years off your mortgage.

 

Any statement/s are general in nature and do not take into account your financial personal situation, objectives or needs. You should consider whether any statement/s is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement.

(29)    For the Rate Cutter Variable where the borrower pays $1170 upfront fees then a corresponding loyalty discount of 0.10% p.a. off the Rate Cutter Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(27)    For the Investor Rate Slasher Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Slasher Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(26)    For the Low Rider Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(25)    For the Economizer Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Economizer Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(24)    For the Super Saver Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.10% p.a. off the Super Saver Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(23)    For the Super Saver Variable where the borrower pays an upfront fee of $1170 then a corresponding loyalty discount of 0.15% p.a. off the Super Saver Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(22)    For the Economizer Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.11% p.a. off the Economizer Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(21)    For the Investor Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(18)    For the Home Owners Dream 1 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(20)    For the Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(14)   For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(12)   For the Investor Rate Lovers Interest Only where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.07% p.a. off the Investor Rate Lovers Interest Only rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(11)   For the Wealth Maximizer 3 year fixed Principal & Interest where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(10)    For the Wealth Maximizer 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(9)    For the Home Owners Dream 3 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(8)    For the Home Owners Dream 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(7)    For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(6)    For the Investor Rate Buster Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Investor Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(5)    For the Rate Buster Variable where the borrower pays an upfront fee of $150 then a corresponding loyalty discount of 0.05% p.a. off the Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(4)For the Rate Slasher Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.08% p.a. off the Rate Slasher Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(3) For the Investor Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Lovers Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(2)For the Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Rate Lovers Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(1) For the Low Rider Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(28) For the Rate Crusher 1 Year Fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.05% p.a. off the Rate Crusher reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(19) For the 1 Year Fixed Wealth Maximizer where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the 1 Year Fixed Wealth Maximizer reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.