Getting your finances in order can be a daunting task. But if you're thinking about buying a house you'll be better off if you get your finances in order first. You certainly don't want to buy a house then get in trouble paying your mortgage and risk having your property repossessed by the bank.
That's the worst case scenario, but don't worry, it's unlikely to happen if you take time to assess your finances before you buy a home. In any case, if you don't assess your finances carefully before you apply for a loan getting a mortgage could be hard.
The most common reason house sales fall through is because the buyer failed to get finance in time. So what can you do to get your finances in order before you make an offer?
These financial tips for home buyers will prepare you and take the fear out of the process. Leaving you to feel excited about buying a home, not stressed out and anxious about the financial side of things.
1. Set your budget
This will take time. You'll need to work out exactly what your current incomes and expenses are so you know what you can afford to spend on your home.
There are countless tools available for budgeting online and the Australian government Money Smart site has some great tools and tips to get you started.
2. Consider additional expenses
Extra costs of buying a house may include building, pool and pest inspections, legal fees, removalist costs, insurance and government fees or taxes.
Factor these expenses into your budget to avoid having to revoke an offer when you realise the property is outside your budget.
3. Prepare your paperwork
When you apply for a mortgage you'll need to provide your bank with proof of income and details of expenses. The paperwork you may need to produce includes bank statements, tax files, income statements, rent payments and higher purchase expenses such as cars.
Take time to collect photocopies of all these things and put them in a folder so you can easily show them to your bank or mortgage broker when the time comes.
4. Get organised early
Getting a mortgage often takes longer than expected so get your application in two or three weeks before you need approval if possible.
If you've already made an offer on a property then time is often short and you should read next steps for buyers for more details on what you need to do next.
5. Get pre-approved
Getting a loan pre-approved will make things easier when you find the right property and want to make an offer.
Better yet, having that pre-approval for your mortgage should make your offer more attractive to sellers and give you an advantage over buyers who don't have a pre-approved mortgage.
6. Set up a personal meeting with your bank
Get to know your bank manager so that your mortgage request forms don't come from a stranger. You may be working with the bank for decades as you pay off your mortgage and having a good personal relationship will make any special requests more likely to be accepted.
7. Find a good mortgage broker
If you haven't got a specific bank in mind then ask friends or relatives who've bought recently if they can recommend a good mortgage broker.
The right mortgage broker may be able to save you thousands of dollars in interest over the course of your loan, or help you get a mortgage if you're self-employed or have an irregular income.
8. Triple check bank account details
When the time comes to buy a house and make the final payments make sure you give your bank and lawyer the right bank account details.
Most people have multiple bank accounts and you need to give your bank approval for transfers from each account individually. Just because they have approval for your cash account doesn't mean they have approval for the savings account where you've got your deposit.
9. Set the deposit carefully
Most agents and buyers are flexible on the amount of deposit you need to pay. If a lower deposit is better for you then set a lower deposit and avoid unnecessary stress from the beginning.
10. Be conservative
Finally a last reminder to be conservative with your finances when you buy a home. Don't borrow more than you can afford and consider the implications of situations which we all hope will never happen like job loss, serious accidents or family breakdowns.
Not all unexpected eventualities are bad either. My wife and I were super surprised to find we were having twins the second time around.
You never know what life will throw at you but, if you've followed these financial tips, your home buying experience should be fun, not fraught with worry.
Want to know how much to budget for legal fees?
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