There’s no denying that first-home buyers have it tough. From trying to pull together a deposit to navigating the overwhelmingly complex world of property to find a home you can afford, it’s no walk in the park. It’s about more than just giving up avocado toast and pinching pennies to secure a home loan. Once you do have that deposit tucked away, how do you go about getting approval (and pre-approval) for your first home loan?
Before you begin looking at particular properties or head to the bank in search of your first home loan, it’s important to do a financial health check and assess your situation. Ask yourself questions about any assets you may have, your debts and current expenses and possible lifestyle changes that may influence this in the future (like paying for a wedding or having children).
If you’re planning to invest, rather than live in your new home, there’s a whole separate set of factors for you to consider before, during and after the financial process. For those who plan to call their newly purchased property home, now begins the actual process of gaining approval for your first home loan.
The Australian Government has made the First Home Owners Grant of $15,000 available to people purchasing a property for the first time. This is only available if you are buying a brand-new apartment, new townhouse or new block of land. This grant can sometimes be used as part of your deposit and there are also special offers from developers that to top up your grant to help you even more. Rules vary between states and territories, so it’s best to check out the website to determine your eligibility for this grant.
It’s crucial to understand how much you can borrow before you begin your property search. Use a mortgage calculator and always make sure to give yourself a bit of wiggle room for ongoing strata fees, council rates and utility bills. Getting a pre-approval for your first home loan is a vitally important step that can help you avoid unnecessary headaches when it comes time to actually putting offers on properties. Visit multiple lenders or mortgage brokers so they can assess and confirm how much you can borrow. With multiple loan packages on the table, now’s the time to narrow it down and decide which will best suit your circumstances before getting a written pre-approval. Whether you opt for a fixed or variable rate home loan is up to you, what’s most important is undertaking the pre-approval process.
Pre-approval is proof from a lender that you are eligible to take out a home loan for a specified amount of money. Whether you are buying a new or existing property, having this pre-approval means that you can act quickly when you find a property you want to buy. Although it seems simple, this process can actually be the most complex. You need to make sure you have all the documents and proof of your financial position available. In the last two years, the APRA (Australian Prudential Regulatory Authority) started tightening lending restrictions to the banks. As the body that governs the Reserve Bank lending, this can have a big impact on home loans. APRA has begun specifically or subtly putting conditions on the money lent by banks, which has begun to alter their lending practices. The consequence of this is a decrease in overall finance approvals. Read more about the changes here.
Mr Gunning from the Real Estate Institute of Australia says the APRA restrictions coupled with the fallout from the Royal Commission into Banking have resulted in an extremely cautious approach by lenders.
“Loan applications are now being scrutinised for real costs of living including outgoings such as school fees and use of credit cards. At the same time, an ultra-conservative approach is being taken by banks with their valuations which means that funds available are below purchaser’s expectations,” Mr Gunning said.
Buying property can be one of the most stressful and complex things you’ll ever do. Through the labyrinthine processes and mountains of applications, it’s a very technical process. What’s most important is to try not to get overwhelmed. There are no time limits put in place and it’s important to take this journey at your own pace. A myriad of professionals are out there and willing to lend a helping hand and talk you through the process, so this is not a road you have to walk alone.
While it’s important to take all of the above into consideration when applying for a home loan, it’s not all doom and gloom. The increase restrictions just once again highlight the importance of obtaining written and signed pre-approval on your home loan, as the figure may be a little different than what you’d worked out on a mortgage calculator. This means you won’t waste your time searching for properties you can’t afford.
With the property market trending towards more homes suitable for first-home buyers and Brisbane properties performing well on a national level, there’s never been a more exciting time to take the leap and buy your first home. While it might be tempting to leap feet first, taking your time to analyse your finances and applying for pre-approval on your loan might be the difference between sinking, and swimming. For more information for first-home buyers click here.