Ready, set, buy! Get your finances ready for your first home
Dreaming of picking up the keys to your very own home? It’s time to get your finances in order. The right deposit and track record will help you put your best foot forward, access the best deals and save on interest.
It can be hard to what needs sharpening up and you don’t want to wait for your lender to tell you, while your perfect home slips through your fingers.
What lenders looking for?
This is probably the first thing that comes to mind when you think of getting into your first home. The higher your deposit, the better the rates you can access, and even small differences in interest rate can equate to huge savings down the road.
Also, with government loan-to-value restrictions often a factor, there may be little wiggle room on the minimum deposit required. Those with smaller deposits may be stuck competing with others for a limited number of loans at unfavourable interest rates.
Whatever’s going to boost your savings – in a sustainable, tolerable way – is going to help.
Don’t forget to include Kiwisaver in your calculations. It may be wise to bump up your contributions to the maximum you can afford. The great thing about Kiwisaver contributions is you never see them long enough to miss them, or spend them!
How do you maximise your deposit? If you’ve never worked to a budget before, now’s the time to start. Even if you’re doing well, a budget lets you see what you’re doing so you can make conscious choices about your habits.
Buying a coffee every lunch break might not seem like a lot, but can add up to over $1,500 a year. And perhaps you decide that’s a fair spend, and your savings are doing fine, and that’s okay; but maybe the numbers will surprise you.
If you’re tightening things up, don’t forget to allow for treats and vices. If you’re excited to spend a year eating two-minute noodles and cycling to work while your savings explode, that’s great, but for most of us that’s not a reasonable expectation.
Your employment status might be hard to manipulate in the short-term, but if you’ve been considering a change or a sabbatical, it may be wise to consider how it looks to a lender.
If you’re about to switch jobs, make sure there is some lead time between now and when you want to buy. You want to look stable, and you also don’t want to be working inside a three-month probation period for a small business when you’re making a loan application.
If you work for yourself or on commission, it’s recommended you build six months of income history before you apply for a loan. Alternatively you could consider a Lo Doc loan.
The credit cards
Your lender will be interested in all your current debts. With their ease of use, credit cards are a common source of unconscious spending, and it may be wise to adjust your habits for a few months.
Do you have multiple credit cards? Do you add them up regularly? And what about your partner? It may be time to sit down together with a calculator and make an honest tally.
Your credit card limit may also be a problem. Even if you pay your card off at the end of the month, lenders are wary of cards with high limits. If you don’t need it, cut it down.
Credit card balance transfers may also be a problem. If you periodically transfer your balance to another bank to take advantage of offers, now is the time to stop. While you may not be increasing debt by doing this, it’s another credit check on your record and can look suspicious to a potential lender.
Like your job, it may be unrealistic to magic away debt to make your home loan application as strong as possible. The good news is the majority of applicants have debt, from student loans to hire purchases to personal loans.
But whatever you do, make your minimum repayments and preserve your credit rating. Your lender is going to assume you’ll treat them as you treat your other debts.