Getting a home loan is easy! Go to the bank, fill out a form, buy a house, pay back the bank. Simple! Not quite! All financial institutions have slightly different rules for home lending. Here are a few differences – call Mark on 0403 577 287 to discuss your personal situation.
- Credit cards
When the financial institution is calculating how much you can borrow for your new home, they of course include your currents debts and that includes your credit cards. However, you may not realise that they include the limit of your cards, not the balance. This means even if you pay off your balance every month, having a high limit on a credit card will reduce the amount you can borrow. A credit card with a $10,000 limit would reduce your borrowing power by as much as $50,000!
- You need a deposit
Despite the advertising sometimes seen on TV, you do need a deposit to buy a home, usually around 13% of the purchase price including purchase costs. At least 5% of the purchase price needs to have been saved over a minimum of 3 months, not just deposited yesterday! The First Home Owners Grant ($15,000) in SA is only available for new construction or never lived in homes. The good news is that if you have been renting for a while, some lenders will waive the need for you to show genuine savings, although you will still need to show that you have all of the money required to complete the purchase (i.e. around 13%).
- Living expenses
Financial institutions will take into account your living expenses when calculating how much you can borrow. You will be asked to detail your expenses and the lender also has a formula that it uses. They will use whichever is the greater (your calculations or theirs!) to calculate how much you can borrow. Interestingly their formula is not a flat formula. They assume that the more you earn, the greater percentage of your income goes on living expenses.
- HECS/HELP Debt
If you have studied at University you may still be paying off your HELP debt. This will also reduce the amount that you can borrow for a home.
- Moving jobs
When you move jobs, you are usually given a probationary period. Financial institutions are sometimes reticent to lend money to someone who is still in their probationary period, however some will consider a loan if you are working in the same industry.
- Writing down your income
If you run your own business, you may be able to claim many of your expenses and effectively write down your income for tax purposes. This will reduce the tax you will need to pay but it will also reduce your taxable income and hence the amount of money that a financial institution will lend you for a home. Some payments, like interest and depreciation and personal super payments can be added back in the calculations but most expenses can’t be added back.
- Welfare payments
Some financial institutions will include Family Tax benefits, Child Support and other payments when calculating how much you can borrow. This is usually dependant on the age of the children involved.
As you can see, different financial institutions look at many aspects of your life differently, which is why you need to get help with your loan from a broker who knows what all of the financial institutions need. Call Mark on 0403 577 287.