6 things to do a year before you buy your new home
Buying a new home may sound like a daunting task at first, especially with the Australian home market continually on the rise. Whether you are a first time buyer or a seasoned player there are a few must-dos you should follow to make your buying journey easier.
So before you look at the best home loans and before you write out your budget, let’s step back and think about a game plan, one year out.
12 Months Before
A year before purchasing your new home, you’ve probably been thinking already of finding your own place-- free of rent hikes, evictions and inspections. Plus, owning property is generally a good investment, since your home should increase in value over time (especially in a large capital city).
But before you have keys to your new home, there is a fair bit of preparation you will need to do.
1. Decide where and what you want to buy
Many of us have a Pinterest board dedicated to all the things our dream home should have. Unfortunately when it comes to finding the dream home, not everything you want to tick off will be available (unless you consider renovating) at the price you can afford.
It is important to factor in what sort of property you’re looking to buy and most importantly where. The where will indicate how much you need to save up for the house or apartment you’d like to own. A good place to start is by doing preliminary research on well-known real estate search engines like domain.com.au or realestate.com.au to get an idea of what is available in the suburb you want to set roots in.
Knowing about the property you are interested in will give you an idea of what sort of deposit you will need and how big of a loan you’ll need to acquire.
2. Set a deposit goal
Once you get an idea of how much you can afford to borrow with our home loan borrowing calculator, you’ll have a general knowledge of how much you’ll need to save for your dream home. The earlier you start working toward this deposit goal the more time you’ll have to reach your goal.
If you are purchasing your first home, consider taking advantage of the First Home Saver Super Scheme, the First Home Loan Deposit Scheme, the First Home Owner Grant and the new First Home Buyer Stamp Duty.
A good rule of thumb is to save up a deposit amount of 20% of the property value of the home you want to purchase. The bigger your deposit is, the lower your loan to value ratio is, which will likely improve your chances of the bank approving your loan.
Consider reading our ‘how much I can borrow’ guide to learn all the dos and don'ts that come with borrowing money.
6 Months Before
When applying for a home loan, your finances will be thoroughly combed through by the lender to make sure you manage money responsibly. Having your finances in order will let the banks know that you’re a good candidate, and will boost your chances of approval.
3. Keep an eye on your expenses
Six months before purchasing your future home, it is important to keep big purchases to a minimum. Lenders will want to see recent copies of your bank statements, so you must be able to prove that you can live well within your budget and are staying up-to-date with your bills.
So hold off on getting a new phone or car or anything that might cause the lender to become weary of you. Those big purchases can come after you have the keys to your new home.
4. Make sure your credit score is healthy
Get a free copy of your credit report from Veda, D&B or Experian. This report will show you what lenders see when they review your application. The better your score the higher your approval is. Double check that there are no errors and if you spot one, such as a wrong address or an old bank account, be sure to resolve them so it doesn’t affect your credit score at the time of applying for a loan.
It’s also important to reduce your credit limit even if the outstanding balance is zero. If your credit limit is $5,000, lenders will consider that as a liability, because they’ll view it as potential debt rather than current debt.
3 Months Before
5. Begin inspecting properties
Get your feet wet and inspect some properties so you get some practice when it comes to dealing with agents. Consider also attending property auctions to get a feel for what to expect when it is your turn to bid on your future dream home.
Remember that sometimes property listings do not always show the whole picture. By checking out different properties in the area you want to live in, you’ll get a greater understanding of local traffic noise, nearby construction, what shops are near you, and the general state of other homes around your area.
Just make sure you go with the intention of learning rather than buying. It is easy to get caught up in the excitement of looking at potential homes, but try to not make an offer until all your finances are in order.
6. Shop around for a home loan
There are an abundance of credible lenders, so do a bit of research on the different loans available. With the Mozo home loan repayments calculator you can compare different interest rates with the loan amount you’re thinking of borrowing and see what works best for your budget.
Once you have an idea of which lenders work best for you, consider applying for a home loan pre-approval. The pre-approval lasts for about 3-6 months and can help in keeping you from being tempted to spend more than you originally planned for.
For more information on how to best prepare for the future purchase of your new home, consider visiting Mozo’s home loan resource guides.