Buying a house requires meticulous planning and years of saving. If you think you’re ready for the journey, take some positive steps in 2023 to turn your dream into reality with these simple tips:
- Start saving for your dream home
Building good saving habits can help you reach your goal of owning a home faster. And what better time than the new year to start saving?
The question is – where do you start?
A simple starting point could be calculating your expenses to find out how much money you can save each month without changing your lifestyle. When you subtract your expenses from your income, you get the amount you can put away each month as your savings. But what if the number isn’t adequate to meet your goals?
There are two things you can do to boost your savings. Increase your income or reduce your expenses. You can look for alternative ways to earn more money, such as starting a side gig or doing some contractual work. What you make over and above your regular income can directly go into your savings. While this is a good way to save more money, only some have the time or means to build an additional income stream. However, almost everybody can find ways to reduce their household expenditure.
Jot down your expenses, strike off discretionary expenses, and look for better rates on everything from insurance to utilities. These simple steps can help you save hundreds of dollars each month.
Besides looking for ways to save more money, it also helps to set a savings target. A clear target makes it easier to review your progress and stay on track. You can also consider opening a dedicated savings account that you won’t use for your daily expenses. This will give you a better view of your progress and help reduce impulse spending.
- Bust your credit card debt
It’s probably okay to use a credit card if you pay your bill in full every month. However, if you use your card to purchase things you can’t afford – you could find yourself in a debt trap that is likely to derail your mortgage application.
Lenders consider your debt-to-income ratio while checking your serviceability for a loan. Debt-to-income ratio (DTI) is the percentage of your salary you use for repaying your debts. A high DTI is a potential red flag, as a substantial part of your salary is used for paying off your debts. Having high card limits and credit card debt can increase your DTI, leading the lender to reject your mortgage application so you don’t overextend yourself to repay the loan.
Apart from your credit card, you should also reconsider using buy now, pay later (BNPL) apps regularly. BNPL apps may be handy in some cases to pay off large purchases without interest, but they also promote the culture of instant gratification.
Even though the amount you can spend on a BNPL app is generally limited, it’s possible to open multiple BNPL accounts and spend more than you can afford to repay. Missing instalments is likely to lead to monetary penalties, increase your debts and potentially worsen your credit score.
- Work on improving your credit score
Lenders use your credit score to determine whether they should lend you money. A credit score is based on your financial history and can be considered a report card of your financial behaviour. A high credit score indicates creditworthiness, increasing your chances of home loan approval and even scoring a competitive interest rate.
If you plan to buy a house, consider checking your credit score to see where you stand. You can also order your credit report from any of the credit reporting bureaus to review your financial health. Once you know your score, you can think of ways to improve it. Timely repayments over a period and reducing your debts can help boost your credit score.
- Get pre-approved for a home loan
If you have a decent amount of money saved up for your home loan deposit, you may want to apply for home loan pre-approval to find out how much a lender is willing to lend to you.
Start by comparing home loans to find one that suits your requirements. A mortgage broker can help you choose the right home loan by ensuring you understand the various features, benefits, fees and costs associated with a loan.
Once you shortlist a lender, you can make an application for loan pre-approval. For this step, you’ll typically need to provide your identification documents, bank statements and pay slips to the lender. The lender will verify your information and run a credit check before pre-approving your mortgage. Once pre-approved, you’ll have a better idea of how much you can spend on the house and the cost of the loan to you.
A pre-approval is generally valid for 30 to 90 days. However, a pre-approval is conditional in nature. The lender will re-assess your financial situation before finally approving your mortgage.
- Find a house that you can afford to purchase
Knowing how much you can spend is important to fix a budget for your purchase. But you should also calculate how much you can afford to spend on a house.
A repayment calculator can help you determine your monthly repayments for different loan sizes. Run this number by your household budget to determine the size of the loan you can comfortably repay without cutting down on the necessities. You should also keep an interest rate buffer when calculating your repayments to make room for any future rate hikes.
Once you know how much you can spend, it’s time to begin your house hunt. Do your research, compare prices in the neighbourhood, and look for necessary amenities.
Don’t buy a house simply for its price or the way it looks. Check the crime rate in the area, proximity to your workplace, access to public transportation, quality of schools, etc. These things greatly impact your quality of life, and it’s a good idea to list the things you’re looking for in a house before you go hunting for one.
- Get some help
The journey of owning a home may sound challenging, but you don’t have to do it alone. You can always seek help from experts to make things easier and more convenient. A mortgage broker is one such professional who can offer you a wealth of experience when dealing with home loans.
A broker can help you understand your financial situation better and select a loan that suits your requirements. They may also negotiate with lenders in some cases to get you a more competitive interest rate.
Mortgage brokers are also aware of the various grants and assistance schemes offered by the government to help first home buyers. They can inform you of such schemes and help you apply if you are eligible. Best of all, the services of a mortgage broker are generally free. Consider getting in touch with a broker if you want to learn more about home loans or need help on your home buying journey.
