Are you finance fit? It may be time for a check-up.
Buying a home is a huge deal!
It’s one of the most exciting and important investments you’ll ever make. So, it pays to know what you can afford.
Having a clear idea of your financial health will help you understand your borrowing power, the type of house and land packages in Metro Melbourne and Regional areas that you can build, and the locations you can afford to buy in.
‘Even if you’re not quite ready to build yet, understanding your financial health can help you identify any gaps in your finances,’ says New Homes Consultant Laura Gould, who works closely with Homebuyers Centre’s in-house Resolve Finance team to get her customers into their own home, sooner.
‘Brokers are a free service and are happy to coach you through your financial health to ensure you’re in the best possible position for when you’re ready.’
John Flanigan, Resolve Finance Franchise Owner / Broker, gives the inside scoop on how performing a finance health check works:
1. Understand your assets
Lenders want to know you can handle unexpected money troubles without breaking a sweat. Your assets will include your savings, superannuation, and investments, such as shares. It also includes anything you own of value, such as a car.
Been a little lax in the savings department? It may not be a deal breaker for first home buyers.
‘First home buyers are often disheartened by needing to have a ‘minimum deposit’. However, this doesn’t have to always be the case. Along with government grants and schemes, there may always be a low deposit option home loan that fits,’ says John.
‘That’s why it’s so important to take the first step. Speak to a New Homes Consultant and get a broker involved earl so you can understand what’s possible,’ says Laura.
2. List your liabilities or debts
Your liabilities are any debts, loans, credit or store cards you have on file. This includes:
- Credit card facitilities
- ‘Buy now, Pay later’ platforms such as AfterPay or Zippay
- Property loans
- Car or Personal loans
- Student debts
Your debt will impact how much you can borrow. However, not all debt is created equally. ‘High repayments on depreciating assets such as a car can have a significant impact on borrowing power in some instances,’ says John.
‘For student loans, the lenders don’t look at the debt amount, just the compulsory repayments.’
Finance professionals like the brokers at Resolve Finance will look at options to either consolidate or refinance debts. This should always be with your best interest central to any recommendation; however, it may help to minimise interest and fees and/or make repayments more manageable.
3. What're your living expenses?
Most banks want to see at least three months’ worth of bank statements to get an idea of your spending habits. This includes everything from rent and groceries to mobile phone bills, university fees, fuel, entertainment and streaming services.
Costs of any dependents will also need to be listed – think day care and school fees.
‘A broker will ask you questions about your lifestyle to help you understand your total expenses each month,’ says John.
‘We’ll then offer advice on some of the outgoings that can easily be reduced or removed to improve your finance habits.’
Quick wins include:
- Reducing your media streaming services: Do you really need Stan, Netflix, Foxtel, Spotify, plus the others?
- Moving to a cheaper mobile phone plan: Take a look at some of the cheaper service providers or replace your plan value.
- Cutting incidental spending: Delete your Uber Eats app and choose to go out for dinner one night per weekend instead of two.
4. What's your income?
How much money do you make? This isn’t just your salary. Your income includes any rental income you receive from existing properties, child support and Centrelink payments.
Business income should also be noted – although most banks won’t consider income from businesses less than two years old.
Make a list of all your income after tax, and then subtract your expenses, hopefully there’s a healthy surplus! However, do you also need to improve your finance habits?
5. What does your employment history look like?
Lenders want to know you have the disciplines to make your home loan repayments on time. That’s why it pays to show loyalty to your employers.
‘If you’ve moved jobs a lot over the past five years, lenders may see you as restless or non-committal, and not responsible enough to consider lending to,’ explains John.
The type of job you have can also influence a lender’s decision. Full time ongoing positions, for example, may be favoured over casual, freelance or contract work.
6. Get a credit check
Your broker will be able to request a Credit File Report, which provides a record of your credit history. It includes things like your credit rating, the credit products you hold, and your repayment history including bills.
‘It’ll show a history of your credit accounts and if you’ve made repayments on time,’ says John.
Lenders use your credit score (or credit rating) to decide whether to give you credit or lend you money. Knowing this may help you to negotiate better deals or understand why a lender rejected you.
‘A high credit score is always favoured by lenders because it shows that you know how to manage money and you are more likely to pay back credit, however we do have access to lenders that may be able to assist those with a lower credit score.’
Is your finance health a little under the weather?
Homebuyers Centre’s My Home Plan and mentoring program can help.
‘It’s a specialised financial literacy program, which is supported by a dedicated finance coach and app. It’s tailored to suit your income and budget with proven success in helping customers secure their dream of home ownership,’ explains John.
Ready to start your new home journey?
Reach out to one of our friendly New Home Consultants today to enquire about getting a free finance health check.