Working in an industry full of acronyms, we thought we would make one of our own. A.B.P. = Always Be Preparing. Maybe not so catchy, but the principal still applies. Setting a goal to buy a house is no different to training toward a running race. The only way to reach your goal is to prepare yourself for the time.
At some point you may decide that you would like to own your own home. When this time comes, you will do two things: start looking at houses and make an assessment on what you can afford. This can be a hard time for many people if they come to learn that they cannot get a loan to buy the home they are looking for. Preparation is key – the better your decisions are now, the easier it will be for you to be able to get that loan when the time comes.
So if you are reading this we want to prepare you to be in the best position for a ‘yes’ on your loan application. Here are five simple steps to ‘Get Mortgage Ready’
Step 1: Possibly the most obvious, but overlooked option is to start saving now. Almost any home loan will be dependent on having a deposit and your savings will contribute to this.
Don’t take the small savings for granted. There is a misconception that housing is too expensive and unattainable, so there is no use saving for it. Although we want you to enjoy your hard-earned cash, we also want you to reach your goal of owning your own home. A lack of savings could push out your timeline significantly.
Some lenders also want to see a habit of savings history as this shows good financial behavior. After all, if you do not have the discipline to save, how well will you keep up with your repayments?
Step 2: Get started with KiwiSaver if you have not yet done so and ensure that you are in the right fund with a good provider. This is critical to building up your deposit.
Your Kiwisaver membership could allow you to receive the KiwiSaver HomeStart Grant as well as a withdrawal of most of your KiwiSaver Funds.
In the past year, over 40% of first home buyers made a withdrawal from their KiwiSaver for an average of over $20,000. Couple this with the HomeStart Grant of $5,000 (for an existing home) or $10,000 (for a new build) per member and you quickly see the benefit of using KiwiSaver. Particularly if there are two people going in to buy a home together in which case these figures are doubled. To access these benefits, you should be contributing for at least three years and the longer you contribute, the more you will be able to withdraw.
Step 3: Keep up with your financial obligations. Any blemish on your credit history can negatively affect your application. Assume that all of your financial obligations are recorded. Whether a utilities payment is missed, or you default on a loan, this will lead to an inquiry and remain on record.
A person’s credit history says a lot about their character in terms of a loan application, so it pays to keep it clean. If there are any known issues, the best thing you can do is to be upfront about it and give a logical reason for the incident. This way, some consideration could be made for your case. A bad credit history is not the end of the line and this is something that we can still help with.
Step 4: Watch the market and know what you are looking for. This will help with setting a goal and give you the motivation to work toward it.
Step 5: Manage your debts well. Having some history of loans or access to credit and being able to steward it well does look good on an application. Although we do not recommend taking out a loan just for this purpose.
If you do have debt or want to take out a loan, compare the rates and ensure that you are aware of the real cost of the loan including the establishment fee or early repayment fees. It can be easy to accumulate multiple loans that increase in cost very quickly if not repaid in time. If you find yourself in this position, a debt consolidation loan is a great option to manage the money you owe. The key to this is to look objectively at what repayments you can make and work at paying it off quickly. Another great benefit to consolidating your debt is that it could reduce your monthly expenses, improve cash flow and your loan affordability.
Lastly: Know and believe that it is possible for you to own your own home. If you decide to make an attempt to run five kilometers in 20 minutes, you would work out your required pace and stick to that as well as a training schedule to reach your goal. If you do not really believe that you can reach your goal, you will not have the motivation to continue training and you will not maintain the required pace to make the time. If you believe that you can complete in good time you will do exactly what is needed to achieve the goal.
Buying a home is very much the same. Know what you want, believe that you can obtain it, make a plan, establish the steps needed and implement it. Continue to look at the house that you want to keep the idea alive and keep up your motivation for why you are doing what you are doing.
We can help you by doing a Mortgage Ready Assessment and making a plan to get you on track toward your first home. Including a savings plan and getting set up with KiwiSaver.
Remember, the work and preparation that you do now reflects on the results of your application and it is never too early to start preparing.
If you have any questions we would like to hear from you.