This is the last in our First Home Buyers’ series. We hope that you have found the information to be helpful in you journey towards home ownership.
In this final instalment, we’ll look at some of the Do’s and Don’ts of finance. This will round off the previous article about what lenders do and don’t like.
The Do’s
Prepare your budget
Do prepare a budget. It helps you to work out how much you can afford in loan repayments without placing you under financial stress. Cover all your likely ongoing expenses plus an allowance for the ‘unexpected’. Don’t forget to allow for reasonable entertainment expenses.
Also, consider the impact of any planned changes like starting a family and how you will meet your expenses during any period of reduced income.
Check out our handy Budgeting Tool here.
Research
Do research your home loan options. Using a broker means you’ll have access to a wide range of lenders to compare; all in one place and at one time. You’ll save many hours and have a better opportunity to ‘discover’ highly competitive loans that you may not otherwise come across. This one action could literally save you thousands.
At Portfolio Capital, we have access to over thirty lenders and hundreds of loan products. This means that we are sure to be able to find the right fit for your individual circumstances.
Pre-Approval
Do obtain a pre-approval for your home loan before you start looking in earnest. This gives you a degree of certainty around your ability to borrow the amount you need.
Gaining a Pre-Approval can also strengthen your negotiating position when you find a property you like. In a competitive situation vendors are more likely to accept an offer from a prospective buyer with a pre-approval than one without. Especially so when the vendor needs to sell quickly.
Credit History
Do keep up to date will all financial, phone, utility and other commitments. Lenders use this information to assess your ‘Credit worthiness’.
The Don’ts
Changed Circumstances - Financial
If you have a pre-approval but have not yet settled your home loan DON’T change your financial circumstances without first checking out the impact on your pre-approval.
When you purchase your home and seek to convert your pre-approval to a full-approval the lender revisits your financial circumstances, including new credit checks. If you’ve entered into any new loan arrangements or spent some of your “genuine savings” your financial circumstances have changed.
This would lead to a reassessment of your approval and there is a risk that the changes may mean your loan would no longer qualify. Always check with your broker if you are considering any such changes during the pre-approval period.
Changed Circumstances – Employment
A change of employment could also impact on the ability to convert your pre-approval to a full approval. Again, talk to your broker about the possible impact of changing jobs.
New employers usually impose a probationary period and it is possible that your chosen lender will not provide an approval during this time. Policies in this regard differ between lenders, however, your broker will be able to advise of the impact, if any.
Finance Clauses
If you are depending on mortgage finance to purchase your home never sign a contract of sale without a finance clause. Even though you may have been pre-approved for finance the lender will still be re-validating the pre-approval and the purchased property must be acceptable to the lender. Finance clauses allowing 14 days for approval (“with a lender of your choice”) are normal, however, it is sometimes prudent to ask for 21 days. Your broker can help here as well.
Note: Finance clauses are not generally available when purchasing off the plan. See below for more detail on this subject.
Multiple Applications
We all want to make the right decision as to which lender to go with and we often like to have a ‘Plan B’. However, lodging multiple applications for the same loan can have a detrimental effect on your credit file.
As mentioned in the Do’s, do your research, make your decision as to which lender to proceed with and lodge with them only. If you are unsure when you’ve purchased, your broker can give review your options and you can change course at that time if necessary.
Buying Off the Plan
Buying a property off the plan offers many advantages (although that’s a topic for another day).
While it’s important to check your borrowing capacity by obtaining a pre-approval you need to be aware that these only last for 90 days (180 days with just a few lenders).
For this reason, amongst others, you cannot generally purchase off the plan subject to finance approval. Your contract, once signed, is unconditional.
It is therefore even more important that you don’t do anything during the construction time that may have a negative impact on your final settlement. The Do’s and Don’ts covered here (while not an exhaustive list) are crucial as you don’t have a finance clause to fall back on if the lender declines your final approval request.
This is not meant as a deterrent to off the plan purchases, rather an attempt to create an awareness to use common sense when considering any changes to your circumstances while you have a purchase contract in place that may not be due for completion for anything up to three years or more.
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