Guest post by Bessie Hassan | Money Expert at finder.com.au
Many home buyers often ask themselves; “When is the right time to buy?”, and to be frank, there’s no ‘right’ time, but there are things you can consider to help you decide if your purchase-ready.
Making the decision to buy property isn’t one you should take lightly – it requires careful reflection of your financial and emotional state.
Whether it’s reviewing your outstanding debts, finding out your borrowing capacity, or thinking about your job security and plans to settle down, there are many factors to review when evaluating your financial and emotional situation.
To carry out a lifestyle check, and to see whether you’re in a good place to buy real estate, here are four actions to consider:
- Review your accounts, and improve your financial fitness:
When a bank reviews your home loan application, they’ll have a close look at your finances to determine your risk-profile. They’ll take into account your income, assets, liabilities, debts, and number of dependents to work out your propensity to repay a mortgage.
To improve your chance of being approved for an application, it’s worth looking at your financial accounts and deciding how you can make yourself more attractive to the bank. This could involve consolidating personal debt, lowering your credit card limit, or developing a savings plan to make regular deposits into a high-interest savings account.
If you discover you have bad credit or if you’ve fallen behind on your credit card repayments, you may want to rethink your need to buy property right now. It could be worth waiting until you’ve cleaned up your accounts before approaching a lender (this will save you disappointment too).
- Uncover your property-buying costs:
An initial cost you’ll need to consider is your deposit. In Australia, most full-documentation loans require you to come up with at least a 20% deposit if you don’t want to pay insurance. That is, you need to provide 20% of the property purchase price as a down payment.
However, your costs aren’t going to stop here. Some of your major upfront costs will include stamp duty, legal and valuation costs, inspection costs, and your loan application / establishment fee.
For indirect costs, you’ll need to budget for your ongoing mortgage repayments (you can use an online calculator to estimate what they’ll be), repairs and maintenance, council fees, utilities, and much more.
One indirect cost that many people underestimate is the emotional investment of buying a property. It can be a lengthy and draining process, so ensure that you’re in the right mindset to follow through with your purchase.
After setting up a budget, if you think you can realistically afford your property buying costs (and if you think in you’re in a good mental state), then you may be ready to take the plunge.
- Consider the cost of kids, or plans to settle down:
If you currently have kids, it’s worth understanding how they’ll affect your ability to access finance. Generally, each dependent you have will reduce your borrowing capacity by around $50,000 as lenders recognise the cost of having children.
Similarly, if you’re planning on settling down and having kids, you need to be honest with your broker and your bank about your future plans as the cost of kids can significantly impact your ability to service ongoing mortgage debt.
When establishing your budget, remember to factor in your child-related costs to ensure you have a solid understanding of your ability to afford a property. Childcare, food, and medical expenses are just some of the things to bear in mind.
- How’s your job security looking?
When applying for a mortgage, most banks prefer you’ve been in your existing job for at least 12 months as this shows you have a reliable source of income that can be used towards your repayments.
Think about where you are in terms of your career path. If you’ve been in the same job for a number of years, the bank will review you as a low-risk borrower and this may indicate you’re ready to buy.
On the other hand, if you’ve been between jobs or if you work part-time or casual hours, a bank may be hesitant about lending to you.
Deciding if you’re in the right place to buy property demands careful reflection and planning. However, if you take a proactive approach by fine-tuning your financial position, coming up with a budget, and thinking about your future lifestyle plans, you’ll be in a strong position to make an informed decision about your purchase.
Bessie Hassan is the Money Expert at finder.com.au – Australia’s most visited comparison site – and is a respected commentator who often appears on national radio, TV, and throughout online stories sharing her best money-saving hacks and advice. Bessie is passionate about helping Australians find better, whatever it is they’re looking for.