When you reach the time that you want to
take advantage of the housing market and you have to go with whatever deposit
you have managed to save, you can improve how you present your overall
financial picture to effectively boost the deposit impact!!
When you apply for a home loan, the bank
assigns you an overall credit score with your financial debt and expenses given
a negative rating and your savings and assets a positive rating. Overall you may have a satisfactory rating
even if you do have some debt in your name.
1.
You can apply for a joint loan (2 names, not 1) so that all your income
and debt/ expenses are combined. This is
good if you both work, or both have a steady income and you live together, as
it effectively cuts costs in half and doubles income. It also means that you both have joint
responsibility and ownership of both the loan and the home.
2. You could also choose for 1 person only
to take out the loan, even though you are in a partnership. This is good if only 1 person works and earns
a high enough income to support a loan.
If the other partner stays home to look after the kids, or is a student
for example and does not have a regular paid income, they could actually reduce
the chances of getting approved for a loan if they are included on the
application. If they are a SAHM it means
childcare costs are reduced and that can be a significant saving if the kids
are young and may make the other partners financial situation look better. It is probably why you made the decision to SAH in the first
place. You may have a Govt. income (like
family tax) but this is not recognised by the bank. It means you must trust each other completely
because ownership of the house will be in one name, even though you both saved
together and are jointly paying!!
You might have a personal loan or a credit
card and be worried about it!
I was told that a bank does actually expect
a couple to have 1 personal loan and 1 credit card. It is not ideal but it is workable depending
on how they manage it! Multiple personal
loans and credit cards however are not good and you need to pay them off and
get rid of them before you can get a home loan, this is of course income dependent.
The negative impact of these can be reduced
though depending on your repayment history.
If you have a good history of re-payment, with no defaults – then this
can actually improve your chances with the bank because you can prove you can
pay all your regular expenses and still make regular repayments.
The same goes for paying rent, it is
actually good if you have been paying a rent similar to what the mortgage
repayments will be, as you will be able to effectively prove in advance that
you could manage to pay the mortgage and all other commitments because you are
already doing it. This is one of the few
benefits of current rents in Australia being higher than a mortgage
repayment!!!!!!!
Saving is hard. Some weeks I would put $5 into my savings
account and the next week take out $50 just to tide us over. At different times of year your savings take
a hit (Christmas, Birthdays, Starting School Year). If you stay steady and be mindful through
these times however you can usually return to your original balance and keep it
going upwards in the long term.
You should also try to get a little cash
for your assets whenever possible, it takes longer and a little more work, than
just throwing things away but why shouldn’t your family benefit from your asset
and you can sometimes help the planet too by recycling?!
I preferred to save up and then purchase so
I owned outright before taking delivery.
We had bought our 2 old cars this way, paying approx. $2000 for each of
them and owning them several years. We
just used public transport until we had saved up the cash to buy a car. We were going well and then in 2011 one
car blew a head gasket and was a write-off.
I sold the car seat covers for $80 and I rang around to all the scrap
yards and second hand dealers and sold the car for $150 and used my RACQ
membership to get a free tow to the scrap yard.
Then in 2012 our other cars rego was coming up for renewal but it would
need a bit of work to make it roadworthy, so we drove this till the rego ran
out and then sold it ‘as is’ for $200 :) not a
lot of money but at least we did not have to pay to have our dead cars removed. We were back to walking and other public transport.
It was not the best timing, as I did not
want to spend all our savings. We decided to get our first ever personal
loan to enable us to buy a reliable car for our family in August 2012. This did mean we also used a chunk of our
savings but not all and we were still on track for the home loan!
We had a credit card and it did help us get
through some tight times over the years.
A credit card is pure debt and not a good financial plan, it has high interest
rates and you pay extra in the long term than if you just used cash…. We all know this, but sometimes you just have
to live in the now! I liked having this
as if helped me feel more secure, less worried about financial crisis. False security probably because without
credit card repayments, I would have more cash in hand :)
However, you can turn a credit card into a positive if you have a good repayment history and you ultimately choose to get your home loan from the same bank as your credit card. It means you already have a repayment history with that bank and again makes a negative into a positive on the credit score!
I am sharing this because even with a
recent personal loan and a credit card, we managed to get a home loan in
2013. This is because we had a good
repayment history, with no defaults!
You can also make your rental history work
for you! We had lived at our latest
rental property for 3 years and I asked the real estate agent for a printout of
our ‘rental ledger’ (payment history) and I also asked for them to write a
letter describing us as reliable tenants.
Oh let me mention here, that I had managed to forge a good relationship
with our property agent, despite all the intrusions and she was happy to write
this letter when I explained we were going to try for a home loan. What does the bank see? 3 years in one place, several renewed leases
so landlord obviously happy, no defaults, good tenant overall = reliable and
secure…. It will also help if you are
buying a home in the area near your rental house because you seem settled into
the area and happy to stay there!
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