Things to look out for with your home loan in 2021
Your first home doesn’t have to be a pipe dream this year. What ideas and tips can you use to make sure you get on the property ladder in 2021?
It’s not easy to escape the rent race and jump into home ownership, especially as the housing market returns to vibrant health once again. Fortunately, there are tips that can help you save and secure a home, and they might even help your financial health overall.
1. Start saving by throwing money into an account you won’t touch
Buying a home takes money. Lots and lots of money. You don’t need us to tell you this, and you’re probably already saving for that deposit, but it’ll take more than that, with fees and stamp duty a possible addition depending on when you buy, thanks to some of those government changes going into action in 2021.
Some bank accounts will actually offer ways to round up some of your purchases to throw these extra bits of coin into a kitty for big goals, and while they might start as mere cents, they can grow.
But if you take that a bit further, you can proactively begin to save for that big purchase.
Start throwing some of those random purchases you’d normally consider into a separate account, rather than buying them outright. The coffee you don’t really need, the bottle of wine you’d like but could live without. Take the small purchases before you make them, decide what’s more important, and throw those savings into a special account made for your home loan.
2. Check your credit score early on and make it better
Now that your money is beginning to add up, take some time to work on your credit score.
It’s a big part of your financial health overall, and the more you understand about your credit score, the better your chances will be to score a low rate on your home loan, and on other financial services you’re hoping to use later in life.
Credit scores are measured by how many credit-based products you have — such as a loan or a credit card — and how often you pay them back in a timely way. It can affect utilities and other financial responsibilities, and if you’re talking out a home loan, ensuring you can demonstrate that you’re responsible with money is clearly of great importance when you’re looking to take out a lot of money to buy something like a home.
3. Work out your borrowing power
Your credit score is one measurement you need to consider, but another is how much you can actually afford to take out overall.
It sounds a little like a secret superpower, but really it’s one of the most important factors, taking your financials, your expenses, your dependents, and the type of investment you’re looking at, and bringing it all together for one number.
A borrowing power calculator can help you quickly work out how much you can borrow, and it’s one of the first steps before jumping in and applying for a home loan.
4. Find out if you’re eligible for assistance
Your borrowing power gives you a number, but if you’re eligible for any assistance, that number might be greatly helped. Depending on where you live in Australia, you may find a government grant available to help you buy a home, or even build one.
The First Home Owners Grant (FHOG) provides funding for first home buyers of various amounts in different states across the country, while the First Home Loan Deposit Scheme (FHLDS) offers thousands of Australians the chance to buy a home with a smaller deposit and save on Lender’s Mortgage Insurance (LMI), dependent on their application and the property they intend to buy.
There’s also the HomeBuilder scheme, which sees the Australian government awarding as much as $25,000 for recipients, handy if they want to build a new home if they’ve purchased a plot, or even to do renovations on an existing property.
5. Consider a move outside of the city limits
No matter where you buy in Australia, you can expect the purchase price of a home to be hefty, but both the type of property and the location can impact the pricing considerably. Australia’s housing market is sure up there, and it’s only increasing. While it had a bit of a stall in 2020, it’s already made up the losses and posting record values again.
Many pricey properties can be closer to the city of major metropolitan areas in Australia, so if you’re looking for your first home, consider expanding your search to ever so slightly outside of your comfort zone. That should not only inform how much you need to spend, but how it impacts your borrowing power overall.
6. Research and compare your home loan options diligently
When you have an idea of where you’re buying and how much the area costs, it’s time to research your home loan options. Take a glance at the comparison rates offered by competing lenders, and work out which home loan provider will service your needs best of all.
There’s no one quick fix solution for all of these, with home loan options differing greatly for everyone. You might want something simple that gets you the loan, or you might want something with more flexibility that allows you to withdraw some of the loan from a redraw account.
Compare your options and work out what’s best for you, because there are a lot of choices.