Not organising a pre-approval before going to auction is a massive mistake that many first homebuyers make. In today’s competitive market, where interest rates and property prices are high, it is crucial to approach the home loan application process strategically. Mortgage broker Andrew Rennie from Helping Hand Finance, a former News Corp property journalist, highlights common mistakes that first homebuyers make when applying for a home loan and offers valuable advice on how to avoid them.
One of the biggest mistakes that first homebuyers often make is house hunting before organising their finance. Rennie points out that many buyers do not know how much they can borrow or what their loan repayments would be, leading to disappointment when they realize they cannot borrow the amount they need. Home loan specialist Georgia Bice emphasizes the importance of seeking pre-approval before starting the house-hunting process to avoid any rude shocks regarding borrowing capacity in today’s expensive market.
Another common mistake is poor financial conduct during the application process. Rennie explains that demonstrating poor financial behavior can limit the number of banks willing to approve a loan, potentially forcing buyers to settle for a lender with higher rates. To improve their chances of securing a good deal, Rennie advises first homebuyers to cut back on spending six months before applying for a loan to show the bank that they have sufficient income to repay the loan. Factors such as Buy Now Pay Later accounts, credit cards, and HECS debts can also impact borrowing power.
Rushing through the loan application process is another mistake that first homebuyers should avoid. Richard Whitten, a home loans expert, warns against settling for the first lender that approves a loan quickly, as this can limit options and potentially lead to higher costs. Taking the time to research home loans, consider pre-approval, and explore different lenders can provide buyers with more flexibility and better outcomes.
Budgeting is a crucial aspect that first homebuyers often overlook. Rennie highlights that lenders typically add a 3% buffer to the interest rate when assessing affordability, and buyers should do the same to prepare for potential rate increases. Considering running costs of the property and creating a detailed budget can help buyers assess affordability accurately. Whitten suggests using spreadsheets to calculate expenses and income, mirroring what lenders do when examining loan applications.
To improve their loan application, first homebuyers can follow some key tips. Closing unneeded credit cards and finance, running personal calculations to understand affordability, and seeking advice from a broker early on are essential steps. Brokers can provide access to multiple lenders, offer insights on demonstrating good financial conduct, and help improve deposit-saving power leading up to getting a loan.
In conclusion, avoiding common mistakes and following expert advice can significantly improve a first homebuyer’s chances of securing the right home loan. By planning ahead, seeking pre-approval, demonstrating good financial behavior, and budgeting effectively, buyers can present their best selves to the banks and navigate the home loan application process successfully.