14 Feb How to make it easier to qualify for finance as a first home buyer
Rising interest rates and the surge in the cost of living is making it tougher to save money and qualify for a home loan.
However, there are still a number of things you can do to improve your chances of purchasing your first home and it all starts with getting your finances in order.
Here are five ways you can make it easier to qualify for finance.
Improve Your Budget
When a lender considers how much money you can borrow, they compare how much you earn to how much you spend. The difference between your income and expenses is the amount of money you have leftover which can then be put towards your mortgage repayments. By cutting back on unnecessary spending, you might be able to increase your serviceability.
One way to improve your budget is to create a spreadsheet that details all of your expenses, including rent, groceries, utilities, and other regular bills. Once you have a clear understanding of your expenses, you can look for areas where you can cut back.
Some simple options are stopping eating out, cancelling unused subscriptions and memberships, and even trying to get a better deal on things like insurance or your mobile phone.
Ask for a Pay Rise
If you are struggling to qualify for a home loan, asking for a pay rise could be a way to increase your income. While it may not be easy to bring up the conversation with your employer, it could be worth it if you really need to find a way to improve your borrowing capacity.
Before you ask for a pay rise, it’s important to do your research. Find out what other people in similar roles are earning and prepare a case for why you deserve a higher salary. This might include outlining your achievements and contributions to the company or providing evidence of your increased responsibilities.
It’s also important to be realistic about your expectations. A modest pay rise of $2 per hour could be enough to make a difference, but don’t expect to double your salary overnight.
Compare Interest Rates
When a lender considers your ability to make repayments, they take into account how much your interest costs will be. The lower the interest payment, the more you will be able to borrow. By working with a mortgage broker in Melbourne who can compare interest rates across lenders, you might be able to improve your borrowing capacity.
A mortgage broker can help you compare home loan products, which could save you thousands of dollars over the life of your loan.
Cancel Credit Cards
Credit cards can often be a barrier to getting a home loan for a few different reasons. Banks look at your credit cards as if they are maxed out, even if you don’t have a balance on them, because you theoretically have access to those funds.
By cancelling unused cards or reducing your credit limit, you might be able to increase our borrowing capacity. If you have multiple credit cards, it’s a good idea to cancel the ones you don’t use. This will not only help you qualify for a home loan, but it will also reduce the temptation to overspend.
If you’ve also got a credit card that you’re not paying off every month, that could then also impact your credit score, which might make it harder to get a loan or even lead you to pay a higher interest rate.
Pay Off Debts
If you have high-interest debts, such as credit card debt or personal loans, it could be worth paying them off before applying for a home loan. Any weekly costs that you need to pay will reduce your borrowing capacity. They could also be weighing on your credit rating if you haven’t been keeping up with them.
If you have outstanding debts, your mortgage broker in Melbourne might also be able to help you consolidate those debts into your new mortgage or another type of loan with a lower interest rate. That would mean your interest payments could go down and that might increase your borrowing capacity at the same time.
Are you currently in the market for a new property? Get a clear understanding of how much that property might be worth with our free property report.