Owning your own home is a quintessential component of the ‘Australian Dream’. And with the sheer abundance of land that’s on offer here on this island continent, home ownership should be an attainable goal for virtually everybody. So what’s holding you back?
Of course, Australia’s property market isn’t without its faults. There are many barriers for first home buyers, with rising interest rates just being the tip of the iceberg. If you do have the means to be approved for your own home loan, however, you may be able to experience all the benefits that accompany home ownership.
That being said, purchasing your first property is by no means a diminutive expense, nor is it a streamlined process. Between deciding where to buy, what kind of a home you’d ideally like to purchase, how to secure financing, understanding the legal aspects of purchasing property and so much more, it’s easy to become overwhelmed. However, for many prospective buyers, one of the most significant considerations is whether or not they are ready to take on the financial responsibility of a home loan.
So how do you know if you’re ready? Well, if you possess any or all of the five qualities we’ve outlined below, then you could very well be ready to start house hunting today.
1. You Have Stable Employment
The second best quality for a prospective homeowner to have alongside earning potential is stability. If you’re healthy, gainfully employed, or own a profitable business, chances are you’ll be able to make loan repayments for decades to come.
Mortgage lenders can gauge your stability by taking a closer look at your employment history. This doesn’t necessarily mean that you need to have been working for the same employer for a set period of time in order to qualify for a home loan. So long as you’ve been working consistently in the same industry or job role, you’ll likely be an attractive prospective client for many lenders.
Just remember that your lender’s opinion is still at the end of the day, just a third-party opinion and shouldn’t be taken into account as any kind of advice. If you’re worried that you’re signing on for a loan that’s perhaps a little too large for you, then you should trust your instincts rather than blindly trusting in your lender. Consult with a trusted financial adviser to ensure that you stay within your means when purchasing your first home. Making conscientious decisions can help you maintain your financial stability even after becoming a homeowner.
2. You Have Good Credit
If you’re self-employed, maintain a solid employment history with no gaps, and always pay your expenses and debts on time, lenders will likely greet you with open arms as you shop for a first-time mortgage. A good credit rating means you may even qualify to receive better rates on your home loans. This becomes especially true if you’ve also succeeded in cobbling together a mortgage deposit that’s at least 20% of the property’s sale value, though more on this later.
Having good credit is arguably one of the most important things you will need in order to move forward with a new home loan. With that, be sure to look into your credit rating prior to consulting with any mortgage brokers. You can find your credit rating by securing a credit report through a credit reporting agency.
3. You’ve Calculated Your Debt-To-Income Ratio
One of the first things lenders will evaluate about your financial picture is your debt-to-income (DTI) ratio. As you may imagine, your DTI ratio refers to your overall monthly expenses when compared to your overall monthly income. By adding up your monthly financial responsibilities such as credit card payments, car payments, insurance, etc., and dividing this sum by your gross monthly income, you’ll know how favourably lenders will view the risk of taking you on as a client.
Low DTIs typically mean you’re a reasonable risk for lenders, and they’ll likely be happy to work with you. If you’re at all concerned about how your spending habits or recent bank statements may impact on your DTI, consider consulting with a financial advisor prior to reaching out to a mortgage broker. You may be able to map out lifestyle changes that reduce your DTI ratio, positioning you as a more attractive prospect for lenders when you do want to buy.
If your DTI is already fairly low, however, then you may find securing approval for a home loan to be a relatively breezy process.
4. You’ve Grown Your Savings
In addition to your low or moderate debts, maintaining a healthy, cash-rich savings balance means you’ll be well-positioned to provide a 20% down payment or deposit on your new home, when the time comes. Most borrowers who cannot meet the 20% initial down payment must pay lender’s mortgage insurance (LMI), a lump sum expense designed to protect the lender if borrowers are forced to default on a mortgage.
Although many home buyers aren’t entirely thrilled to pay LMI, it’s worth noting that this insurance does allow specific lower income or younger borrowers to enter the property market on their own terms. However, it’s important to remember that long-term, it’s in the borrower’s best interest to save on these expenses and begin the property purchasing process with healthy savings and an adequately managed debt load. Whatever you spend on LMI can likely be better utilised going towards your home insurance or home maintenance costs.
On that same note, having adequate savings also means you’re prepared for unexpected expenses such as repairs on the home. Furnaces do fail, pipes sometimes burst, and electrical systems may short at the worst of times. Although these expenses were covered by your landlord during your rental days, all of these repairs now become your responsibility. And they can pop up at any time.
5. You’re Sick Of Paying Rent
Speaking of your rental days, if you’re feeling a little fatigued about still not owning your own home and feel that home ownership may be a highly rewarding experience for you, then that’s arguably the most important quality you’ll need as a prospective home buyer. Yes, there are many pros and cons to being an owner-occupier, just as there are benefits and disadvantages to being a long-term renter. But if you’re feeling frustrated about the fact that your rental isn’t allowing you to build up your own long-term equity, then why shouldn’t you secure that opportunity for yourself and for your family?
And with rental rates on the rise across Australia, now is arguably the best time to start your house hunting process. Remember that you’re not in any rush though! You should feel comfortable holding out until the right property comes along, rather than settling so that you can finally start to build your equity. Not all properties grow in value at the same rate, so if building equity is what you’re after, then taking the time to secure a reasonably priced property in a growth area is what will likely yield the best results for you as a first-time property owner and investor.
Make The Right Decision For You Moving Forward
While renting can certainly be beneficial, after a certain point, it just makes financial sense to purchase your own home. When this time comes, it’s wise to speak to an advisor to see if you are ready for a home loan. With the right advice and taking the points discussed above into consideration, you can ensure you make the best decision possible for you moving forward.
Image: Supplied.
This is a sponsored article produced in partnership with Digital Next.
