Despite soaring property prices, many aspiring homeowners still believe that the conditions are right to purchase a house – and for good reason. Many first-time homebuyers have the opportunity to take advantage of record-low interest rates and government grants.
Experts warn that buying a dream home just to get state-sponsored subsidies is not a wise decision. Purchasing a home – much like any big financial investment – requires careful planning and preparation. While owning a home has many advantages, there are many trade-offs you should consider.
How can you tell if you’re ready to take on homeownership? Here are some indicators that could indicate your readiness to move into homeownership.
1. You have enough saved to make a deposit
Saving for a deposit is the first step in every homeownership journey. It is also often the most challenging step as the deposit amount, typically pegged at 20% of the property’s value, can take several years to raise. If you can overcome this obstacle with hard work, dedication, and financial discipline, it is a sign that you are ready to purchase your home.
But, if you don’t have enough funds to pay a deposit, it doesn’t mean that your homeownership dreams are over. A smaller amount can be applied for, but a bigger deposit will often show lenders that you are able to manage your finances well. This will reduce the risk of your loan being denied and increase your chances at getting approved.
2. A stable and secure job is available
It is important to determine if you have the financial resources to pay monthly mortgage repayments before buying a home. The difference between living comfortably and having to struggle is often how much you are able to afford for your mortgage.
Having a stable job that pays well enough to cover for the costs associated with owning a home and your daily living expenses – and ideally with some dough to spare for other lifestyle spending – is a sure sign you afford to take the property plunge.
3. Your credit score is above-average
Your credit score, also known as credit rating, represents your creditworthiness or reliability as a borrower. Your credit score allows lenders to assess your credit health. It allows lenders to see how well your finances are managed and your ability make monthly repayments.
There are three main credit reporting agencies in Australia – Equifax, Experian, and Illion – each with their own set of credit score ranges. These credit reporting agencies can also provide a copy to you of your credit report.
A good credit rating and a high credit score will increase your chances of being approved for a loan. This also shows that you have the financial resources to pay your mortgage monthly payments.
4. Now you have an idea of your financial capabilities.
It is a good idea to ask yourself the following questions before you start your journey up the ladder to property ownership: What percentage of my income am I able to realistically dedicate to my mortgage payment?
Many lenders and mortgage experts adhere to the 28% limit – meaning your monthly mortgage repayments should not exceed 28% of your gross monthly income or the amount you earn before taxes are deducted. This percentage will also keep you below the mortgage stress threshold, which is 30%. Experts suggest that you could be at risk for mortgage stress if your mortgage payments exceed 30% of your income before taxes.
The income and expense calculator will show you exactly how much money you have each month. This will allow you to determine how much money you have available for monthly loan repayments. You may be ready to buy a home if you like what you see.
5. You are prepared to pay the additional cost
You should prepare for many expenses when purchasing a property. Some of these costs involve one-off payments – including deposit, loan establishment fees, stamp duty connection fees, and legal charges – while others are ongoing expenses – including mortgage repayments, land tax, council rates, body corporate fees, and maintenance costs.
Knowing the costs involved can help you make informed decisions about buying a home. It is possible to purchase your dream home if you don’t get distracted by the cost involved.
6. You are well-versed in market information
The purchase of a home requires extensive knowledge and attention. To avoid making costly mistakes and reduce anxiety, you should do your research before jumping into the home-buying process.
Before you go on the market, you should conduct thorough research in the area where you are interested. Check out the homes in the area for an idea of how much they are worth. Your buyer’s agent can also give useful insights that can help in your purchasing decision. You will be able to negotiate if you know the value of the home and its location.
7. You are committed towards homeownership
Purchasing a property is likely one of the most significant financial decisions you will ever make – and for investments of this magnitude, your unyielding commitment is needed in order to succeed. You may face several challenges along the way – a change in the market conditions or your financial situation, for example – but if you are committed to doing whatever it takes to make your homeownership dreams a reality, then you are ready to take on the great responsibility of owning a property.
Are you in search of the perfect home loan?
You can do your own research to find the right loan for you. You will find that home loans are available from different banks. Comparing interest rates, loan features, repayment terms, and other factors can help you determine the best option for your financial situation.
Fortunately, Your Mortgage gives you a comprehensive comparison of the best home loans available from Australia’s top lenders. Click here to see and compare.