Buying our first home or upgrading our existing home can be such an exciting milestone in our lives. We all want to realise our hopes of a better lifestyle.
Excitement is not the only emotion that we associate with what can be one of our biggest financial decisions; the other is less as exciting and revolves around the necessary processes that we don’t need to deal with on a day to day basis.
For most of us (unless we’re one of the lucky ones), the purchase can quite often require finance to support the dream realisation. Sometimes this can be refinancing existing arrangements, and other times it can be getting our first loan. The requirements to get these loans historically were fairly predictable and provided you could demonstrate savings capacity, servicing and had consistent employment, it was a path that could be navigated reasonably easily.
Much of our time was spent on the fun stuff like focusing on and researching different houses and areas of interest, and as little as possible on the process of getting the loan approved.
Well, the game is certainly changing and as Dorothy states in the Wizard of Oz, “Toto we are no longer in Kansas”. Lending requirements are tightening substantially and the bar is continually being raised with large variations between lenders. Confused yet? Well, the other catch is that these variations can (and do) changes on a day to day basis.
There is now increased scrutiny on gaining accurate data on the actual spending patterns and cashflow position of the applicants. No longer will generic standard average spending models be acceptable. No longer will applicant rough estimates meet the higher requirements of the lenders.
So, what is the best way to navigate the new game?
Here are our Top 10 Tips that we believe will make this a more streamlined and less stressful experience:
- Take the time to understand what you want and what you need – these can be two very different things (and can also have a big difference in price or lending requirements and future repayments amounts and time frames)
- Realise that the game has changed and the bar has been raised – no point in reminiscing of how much easier the process was in the past, it won’t be of any help.
- Realise that more preparation is required and start putting your energy and focus here (where it will actually count).
- Gain a detailed understanding of your income and more importantly spending. This could (and most probably should) be as early as 12 months prior to a planned purchase. Do up a budget and cashflow schedule (if you haven’t already got one). Haven’t got a template? Contact us and we can provide you one to work from
- Engage a professional broker and/or adviser earlier in the process so you have a really good understanding of where you currently are, where you need to get to, and what does the plan of attack between the two look like for you to get there.
- Engage a professional coach / mortgage broker to assist you in preparing the detailed submission to the most competitive lender at the time. Getting the right help in this department can really make a big difference in how your submission is considered.
- Use the professional coach / mortgage broker to assist in finding you a loan that meets your individual objectives immediately, and also into the future.
- Gain the confidence of understanding exactly what you can afford rather than what you can borrow. (Refer back to Tip No 1 - There can be a significant difference and avoid the temptation of the additional credit upgrade that you will be paying off for the next 25 plus years.)
- Take the time to understand what the impact of interest rate rises will be and the pressures that this will bring with it. Work on the assumption that rates will eventually rise and make sure you are comfortable in making sure you can make the higher repayments.
- Take the time to build up a bigger buffer/rainy day fund for those more common unexpected events that can happen post the purchase (i.e. unexpected home upgrades/ appliance replacements etc. which can all add up to put a decent dent in the rainy day fund).
Following these tips puts you in the strongest possible position to significantly reduce the stress that the process can place on you and your loved ones.
Remember that you can take control of the process. Engaging a professional third party can ensure you are familiar with changing requirements and best prepared to navigate them as quickly and as painlessly as possible. Take advantage of their experience – that’s what they are there for!