Overcoming Obstacles: A Guide for First Home Buyers

Property prices have fallen and it seems like the perfect time to invest in your first home.

If you are a first homebuyer, you might have to overcome a set of hurdles before securing a home loan to buy the desired property. Knowing these hurdles in advance will help you to prepare yourself thoroughly for the loan application process and increase your chances of getting approved on the first attempt. 

This article discusses the five major challenges faced by first-home buyers in securing home loans. 

Credit Score

Your credit score is an important factor in determining if you will be approved for a home loan. Lenders will look at your credit history to determine if you are a reliable borrower. If you have a low credit score, lenders will not look at your home loan application favourably.

Consistent Income

Lenders will want to see evidence of your income to determine if you are able to repay the home loan. The lender will look at your income and debt-to-income ratio to make sure you will earn a steady income to pay back the home loan you are applying for.

Saving for the Deposit

You need to have your contribution towards your home. In general, the minimum is 5% of the property price. If the property price exceeds $ 600,000 you need to have funds for stamp duty.

The higher the deposit, the lesser the cost of the loan such as lenders’ mortgage insurance.

A recent First Home Buyers Australia (FHBA) survey reported that over 40% of respondents struggle to accumulate a deposit and it is the most difficult part of getting their first home loan.

Documentation

Lenders need to see evidence of your financial situation. This includes bank statements, tax returns, pay slips, employment contracts, letters from the employer and the list goes on. If you are self-employed, you need more documents such as tax returns, business Bank statements business activity statements, ABN registration details, etc. information across all documents must be consistent to support your loan application

Borrowing Capacity

Different lenders have various policies for calculating borrowing capacity. As a borrower, you are not aware of the differences. For example, some lenders consider the average income across two tax years while others consider the income as per the recent year’s tax return.

Therefore, it is important to get a pre-assessment of your loan application before submitting a loan application. You can reach out to an expert like Sally Pietersz at Rands Financial Services to assess your borrowing capacity.