Not organising a pre-approval before going to auction is a massive mistake that many first homebuyers make. In today’s challenging 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 emphasizes the importance of knowing how much you can borrow and what your loan repayments would be before starting the property search. Without a clear understanding of your borrowing capacity, you may end up disappointed when you realize that you can’t borrow the amount you need. Home loan specialist Georgia Bice advises first homebuyers to consult a broker or the bank first to determine their borrowing capacity before house hunting.
Poor financial conduct at the time of application can also hinder your chances of securing a good home loan deal. Rennie suggests cutting back on spending six months before making the application to demonstrate to the bank that you have enough income available to pay off the loan. Factors such as Buy Now Pay Later accounts, credit cards, and HECS debts can affect your borrowing power, so it’s essential to manage your finances wisely.
Rushing through the home loan application process can also be detrimental for first homebuyers. Richard Whitten, a Finder home loans expert, warns against settling for the first lender that approves your loan quickly. Taking the time to research home loans and consider getting pre-approval can provide you with more options and potentially better deals. It’s crucial to shop around for lenders and explore different loan options before committing to a contract.
Budgeting plays a significant role in the home loan application process. Lenders typically add a 3% buffer to the interest rate when assessing borrowers‘ affordability. Rennie advises borrowers to do the same to prepare for potential interest rate increases. Calculating all running costs and factoring in potential rate hikes can help you determine how affordable the loan would be in different scenarios. Whitten suggests creating a detailed budget and being precise in your calculations to present a strong application to the lender.
To improve your home loan application, consider the following tips:
1. Close unneeded credit cards and finance to increase your borrowing capacity.
2. Run your own calculations to understand the affordability of the loan under different circumstances.
3. Speak to a broker early on to explore a wide range of lenders and receive guidance on demonstrating good financial conduct and improving your deposit-saving power.
By following these tips and avoiding common mistakes, first homebuyers can increase their chances of securing the right home loan for their needs. Planning ahead, managing finances wisely, and seeking expert advice can help you navigate the complex home loan application process successfully.