Applying for a home loan can be a frustrating and lengthy process, especially in an ever-increasing difficult credit market. 2019 has demonstrated a softening market creating opportunities to first home buyers who are ready with the right finance.
A big part of being ready for your purchase is obtaining pre-approval. When doing so, responsible lending laws require the lender to undertake a ‘serviceability assessment’ to stress-test your financial position and capacity to repay a loan. Recently banks have been applying a higher degree of application scrutiny.
Some lenders require as much as 3 months transaction statements from your transactional account to help verify your monthly cost of living.
As a result, many of my clients are undertaking a ‘Financial Boot camp’. The notion of knuckling down for a concerted 3 month period will let you financially experience exactly what it would be like to have your home loan while proving to the lender that your cost of living is not too exorbitant to afford a home loan.
Best Tips for your Boot Camp
Set a plan and stick to it
Super charging your savings takes dedication and sacrifice so sticking to your plan is critical. A three-month savings boot camp will prove to a lender that you are diligent with your savings and demonstrate that you are a financially responsible and a desirable client.
Minimise and reduce any unsecured debts
Credit cards are factored into an applicant’s monthly expense at around 3% of the value of the limit. This means a card with a limit of $10,000 has an assumed monthly cost of $300. Even if you pay off your cards on time or don’t use them that often, banks need to include the debt as an expense as you may use it in the future. Reducing credit card limits or even cancelling cards can be a big help in ensuring your borrowing power is not impacted too heavily.
Be financially savvy
We all have those little habits that we know are limiting our cash flow. When saving for a home, it is a great time to be motivated to change your ways. With so many ways to overspend in our daily lives, focus and control is fundamental to minimise unnecessary spending. Some quick wins include: clearing credit card debt, spending more time making dinner as oppose to going out, review your car and health insurance premiums, restrict yourself to 1 take away coffee a day.
Get your friends and family involved
Being open about your saving goals and reducing expenditure to friends and family is an okay thing to do. It may come as a surprise but most people do share the same views in looking to save a dollar here and there. If you are open and transparent with your friends and family then they can understand your goal and possible set in place some alternate ways to socialise which are budget conscious.
It isn’t about cutting yourself completely off from engagements with friends and family but rather stick to your budget and make well thought out decisions on what you can spend your money on.