What to Consider When Applying for a First Home Buyer Loan

Publication date: November 16th, 2020

Buying a house to make a home is one of the most exciting things a person can do. It’s also the thing you get to do once you become a full-blown adult. Many people dream of owning their own place without having the immediate capital to do so.

Luckily, that is why there are many different financial service providers available like this one: https://www.derwentfinance.com.au/first-home-buyers/. Created specifically to help first-time buyers to obtain the money they need to buy their first home. With the number of different home loaners available each with their own set of requirements, it can be difficult to figure out which loaning service you should go for.

Remember that when you sign a contract with a loaning company, you’ll be bound to them until it’s completely paid off. To help first-time buyers sign the right agreement, here are a few things that should be considered:

Check Your Own Finances First

Before you can even start shopping around for a house, you should make sure that your own finances are in good standing first. Many loaning companies won’t be able to offer you a loan for a house above your affordability rate. Therefore, you have to make sure that you plan ahead to ensure you have the means to make a big purchase.

Home loaning services will look at your monthly expenses, monthly income, and your credit score. Try to reduce your monthly expenses by canceling subscriptions and services that you aren’t using. If you can save on your internet connection, monthly insurance premiums, and utilities then find out from the providers. Cut costs, to prove that you aren’t spending more than you can afford.

Additionally, you should also take measures in improving your credit score. Primarily, you should avoid applying for multiple credit accounts right before applying for a home loan. Read this article for more tips on how you can improve your credit score.

When you adjust your own expenses and work on a decent credit score, the home loan provider is more likely to approve a bigger loan.

Ask for Support

Some first-time buyers with a lower income might struggle to get a loan when they try to do it alone. To increase your chances for a loan, you can apply as a joint applicant.

This means, that instead of applying for a loan by yourself, going on only your own income and financial standing, you and someone else can apply together. Two incomes are better than one and as long as both parties have a decent credit score and low expenses, it’s almost a guaranteed application.

When a joint application is approved, each party is equally responsible for 50% of the legal fees, bond, and repayment.

Do Your Homework on Upfront Fees and Costs

Buying a house is not as easy as buying a refrigerator or even a car for that matter. There are loads of different upfront fees that have to be settled first. It’s wise for all first-time buyers to have a decent deposit at hand. Most estate agents recommend paying a 10% deposit of the house’s value. If you can put down a bigger deposit then you are more likely to get a better deal on the house’s price.

Upfront costs that you should also consider when you start saving up to buy a home are:

• Transfer fees
• Bond registration costs
• For properties over a certain amount a transfer duty fee might apply
• Loan initiation costs

When you apply for a loan from a financial provider, they might waive some of the upfront costs as part of their service. It’s therefore important to shop around to find the best option.

Choosing the Right Kind of Loan

There are a few different loans that one can choose from. This will have an effect on monthly interest as well as the amount due every month.  You should find out from your home loan provider what kind of loans they have on offer.

Typically, there are two kinds of loans:

• Fixed Interest: This means that the buyer will commit to a fixed interest rate for a specific period. Regardless of changes in the future, the buyer is committed to paying the interest agreed upon in the contract
   
• Variable Interest:  When you sign an agreement with a variable interest rate, you’ll be able to receive the benefits from a decreased prime lending rate, but will also have to adhere to an increased prime lending rate. This is a riskier option for first-time buyers, this is why financial service providers can offer a more competitive rate

Budget

If you’ve been renting an apartment for many years and finally have to start paying a mortgage, you’ll see that it will take a toll on your finances. But it doesn’t have to when you plan ahead.

When your home loan has been approved, you should draw up a budget to help you stick to the repayment plan. Not only should you keep in mind the monthly repayments, but also keep in mind other expenses in and around the house. When your home comes with a swimming pool, you will have to pay extra maintenance fees to ensure its upkeep. Keep your hand on other expenses like groceries, electricity, and recreational.

Always remember that buying a home comes with great financial responsibility. It’s an investment that shouldn’t be taken lightly. It’s important to not drop the ball in order for you to be able to cover all your expenses.

If you can’t repay the loaning company for a few months in a row, you’ll be at the risk of your home being repossessed and never getting a loan again.

When you consider all of the above factors, you’ll be able to sign an agreement with the right loaning company. Making the right decision as a first-time homebuyer when looking at financial loans, will guarantee a smooth transaction now and a smooth pay off for the future.