There are many huge moments in life, from passing your driving test, to successfully cooking your first omelet, but very few moments have the gravity of owning your first home. Finding the best home loan interest rates are just the beginning, how do you know when you are ready to make the leap and become a homeowner?
Lenders have notoriously relaxed standards when it comes to lending large sums of money. While this irresponsible lending may have been changed somewhat by the royal commission of 2018, its still surprisingly easy to be approved for a mortgage, even if you aren’t ready to take one on.
Before locking your self into several decades of repayments, take stock of your situation. There are several hallmarks of a person ready to own a home.
A history of saving
Saving up a deposit for a home, and securing a good home loan with low rates can seem like a big challenge. A good way to practice financial responsibility is to start saving. A strong habit of saving not only gives you practice in managing a budget but looks favorable on a home loan application. The more financial mastery you display, the less risk you present to a lender, and the lower your repayments will be!
The larger your deposit, the less you will have to borrow, and the lower your repayments will be. Having a savings account can also be used as an offset account on your mortgage, essentially lowering the interest paid on the principal borrowed.
No more debt
Are you debt-free? Congratulations! Being debt-free is a milestone worth celebrating. Having no debts bogging down your finances is a sure sign you are ready to buy a home. A clean bill of financial health also means the best interest rates for your home loan. No debt looks fantastic on a home loan application.
If you are living paycheque to paycheque, you might not be ready to purchase a home. Having a stable income is vital for planning your budget and mortgage repayments. Owning a home is a big responsibly, and you will need reserves of cash for unseen events and repairs.
If you think there will be weeks when you are short of money, a home loan might not be the best idea. A default on a home loan repayment looks very bad on your credit score and could even see the bank repossess your home. Don’t risk it; settle your self first before taking on such a large commitment.
Do you even want to own a home?
It might seem silly to list this, but if you are financially ready to own a home, does it mean you should? Owning a home is a dream for many, but if you don’t share this dream, there is no point in embarking on it. There is some evidence to suggest those who rent will be better off in the long term. If you move around a lot for business or can’t decide what home suits you best, save your money.
Sometimes it’s not financial factors that push us to buy a home. If your family is growing, it might be time to relocate into something more permanent. A family home is the dream of many Australians, and why not? A home represents stability, longevity, and legacy. A family home is not just a piece of real estate, its bastion of love and prosperity.
Are you ready to take the next step and purchase a home? Only you an answer that question. Having a strong savings account, a steady income, and no debts is a very good place to start.