If you’re considering your next property move, the first thing you should have organised is your finance. The last thing you want is to have your heart set on your dream property and miss out because you weren’t financially prepared.
We spoke to Damien Page from Loan Market for his top tips on how home buyers can ensure their finances are ready before signing on the dotted line.
How much time should buyers allow for finance approval or pre-approval if they are looking to buy a home in the next 3 – 6 months?
Generally, pre-approvals take 1-2 weeks to be granted depending on the lender. Usually, if you start looking at homes to purchase, you should have a pre-approval in place before attending open homes as they last for up to three months.
How would you recommend buyers set their budget for their next home purchase? What’s the best way to discover how much they can spend on a home?
The best way to find out how much you can spend on a home is by talking to a mortgage broker. Banks not only look at how much spare income you have after expenses, but they also factor in contingencies in the rates and buffers on debts.
When is the right time to have finances ready? At what stage of the process?
It is always good to have a fully assessed pre-approval before looking at homes. If you put an offer on a home without having your finances in order, you are liable to potentially lose your deposit. A mortgage broker is there to guide you from day one until years after the purchase has been made.
What documents are required?
It depends on personal circumstances and particular lenders. Usually, Proof of ID, Income, Expenses, Employment, Account Conduct and Savings are the necessary documents for a loan approval.
What is involved in a pre-approval?
Depending on lenders, usually verification of income and deposit to ensure the bank would be happy to provide finance. Mortgage Brokers usually have the bank provide a pre-approval with the only condition being a contract of sale.
What are the key challenges that buyers are facing at the moment when it comes to obtaining finance?
The Royal Commission and lower property prices have made it harder for buyers to gain finance. Valuations are coming in low and banks are tightening their belts regarding lending. We are seeing more declines by banks which are also lowering buyers credit scores making it even harder to be approved.
What advice would you give to buyers looking to purchase a home in the next 3 – 6 months?
The most important thing you can do is cut down your current expenses, pay off any debts and save. Banks want to see a saving commitment for 6 months prior to them lending money, demonstrating that you live within your means. Closing extra credit cards and minimising any debts is also a must. Get advice from a mortgage broker in advance about ways to improve your chances of being approved when the time comes.
What might buyers be unaware of that can influence the ability to get finance?
The three main things that seem to surprise buyers are:
1. Banks assess credit cards based on the limit and not on the amount owing.
2. Banks check last 3-6 months of savings and transactional account conduct to ensure you are saving money and not spending on untoward things such as gambling.
3. How much you spend per month on consumable items. Many buyers will underestimate how much they spend per month. Review how much income your household has per month, then minus how much you put into savings per month = your expenses.
For upsizers, are there any key challenges that need to be considered? For example, bridging finance? What do upsizers need to be aware of?
Currently, the biggest challenge for upsizers is valuations coming in low. Banks historically take a conservative approach to house values. This means that when trying to do bridging, you will generally be assessed as having less equity. The best option is to speak to a mortgage broker about your situation so you can plan before you sell or buy.