Ready to commit to a home loan?

How to tell if you are ready to take out what might be the biggest debt of your life: a home loan.

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Getting a home loan is a lot like taking the next step in your relationship… you have to be sure you’re ready before you take the leap.

There are many reasons to say “I do” to a mortgage, from today’s low interest rates and skyrocketing rent, to the convenience of having a set of keys and a place to call your own.

But before taking out what could be the biggest debt of your life, here’s whether to tell if you’re ready or not.

Are you in it for the long haul?

Buying your first home is an emotional process, not just a financial one.

Just like finding that special someone and realising you’re ready to settle down with them, you have to know that you truly want a home before you can set about acquiring your first loan.

Ask yourself why you want a property.

Do you really want to lay down roots somewhere and turn that house into a home?

Or is it simply something you want to do on a whim?

Are you able to invest?

Generally speaking, the bigger the deposit the better.

The more you can pay upfront, the less you’ll have to borrow and the lower your repayments will be.

While some lenders may lend up to 95 per cent, you’ll be looked upon far more favourably by many lenders if you’ve been able to save between 10 – 20 per cent of the property value as a deposit.

If you have a reasonable amount saved as a deposit, then it’s going to help you buy a more expensive home.

But that doesn’t necessarily mean you should use all your savings and borrow up to the maximum that lenders will allow for your income.

Sometimes it can be a good idea to have a little in reserve after buying.

If you have $60,000 saved, consider keeping $10,000 in your redraw or offset account.

It will give you a buffer in case something changes your financial position.

Improve your borrowing power

If you have a decent income but you’re short on your deposit, a guarantor can help you apply for a larger loan than you might otherwise be able to.

It can be worth asking parents about this early, and if they’re willing, they can join in with your first broker meeting and find out more about their responsibilities with this type of financial arrangement.

When you’re applying for a loan, a lender will take many factors into consideration before calculating how much you can borrow. This is often known as your ‘borrowing power’.

Improve your borrowing power by:

• Consolidating your debt

• Lowering your credit card limit

• Keeping your financials up to date

• Saving a larger deposit

• Resolving any blemishes on your credit history

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