Three steps for readying your finances to buy a house

No doubt you’ve been sticking to a budget and saving your money for a house deposit, but here’s a three-step guide to getting your finances in order so lenders can see that you mean business. 

Get your deposit and statements together

The first step is to pool any savings, investment dividends and financial gifts that you’d like to put towards a home loan into one savings account, explains mortgage broker and founder of Two Red Shoes, Rebecca Jarrett-Dalton.

“Now is the time to recall loans given to family and friends and present clean statements to your lender,” she says. “Banks will want your last three months’ savings history, preferably in a separate account without any other transactions.”

Practising good financial habits can also go a long way, says Bernadine Pantarotto, communications manager for leading Australian lender Liberty.

“That means paying off existing debts and avoiding new credit card applications,” she says.

Jarrett-Dalton agrees: “A credit limit of $10,000 on a card, even if unused, can reduce your borrowing capacity by around $50,000, so anything you don’t need, get rid of.”

Determine your budget

To determine a realistic budget, you’ll need to find out your borrowing power and review your credit score, advises Pantarotto.

“It can also be helpful to review your credit score and take any necessary steps to improve it, such as paying off existing debts,” Jarrett-Dalton adds.  “Keep working your regular hours and pop your payslips aside. If you’re already self-employed, get your tax returns ready,”

Start by first looking at your recent expenses and assess your cash flow to determine a comfortable amount that you’d be willing to pay off. Your serviceability – that is, how much the lender thinks you’ll be able to pay back – is based on your household income, existing financial commitments and past financial behaviour.

“Getting pre-qualified for a home loan can give you a clear understanding of your borrowing capacity when house hunting,” Pantarotto says. “If you’re tired of crunching numbers or prefer to speak to a real person about your property plans, find a local mortgage broker, who can remove stress about the process and help you get home loan ready.” 

In order to get yourself ready for loan pre-qualification, Jarrett-Dalton recommends that you:

Look for alternative lending options

When shopping around for the best home loan, crunch the numbers carefully. You’re likely to be paying off your home loan for decades, and Moneysmart points out that even a small difference in interest rates can make a big impact over the years.

When it comes to finding the right loan for your situation, there’s more to consider than just interest rate, explains Pantarotto.

“It’s important to research different home loan options and features to find something that fits your current situation and long-term goals,” she says. “For example, if you’re a borrower with unique circumstances, you might need a loan that offers other important features such as a smaller deposit or flexibility when it comes to verifying your income.” 

Once you select a lender, get pre-approved for a loan, Pantarotto says. 

“This helps you set an affordable price range, is a signal to sellers that you’re serious about buying, and will give you a clear understanding of your borrowing capacity when house hunting,” she says. 

Home loans come with varying options and features, which can provide greater flexibility to pay off the loan faster. Keep in mind that mortgage features may come at a cost, so consider whether you’ll really use them, particularly if they carry an annual fee.