Become a first time buyer - Chapter 1

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Save for a deposit

Your first step before entering into the property market should be saving towards a deposit.

Buying your first home requires planning and saving.

A deposit is very important as it gives potential home buyers the boost they need when applying for a home loan.

If you have a deposit to put down, the Banks will take this into account and your affordability score will rise.

Additionally, your monthly home loan repayments will be lowered and depending on the relevant Bank's criteria, you could be able to apply for a higher bond if you wish.

Saving towards a deposit is a simple concept although it can seem difficult depending on your financial situation.

However, it is like any investment plan; it takes time and patience. Start by drawing up a budget of your monthly expenses and deciding how much you can afford to save per month.

You may have to make cutbacks on certain items, but in the end being able to put down a deposit will result in lower instalments and less interest over the loan period, making paying off your loan more manageable.

Budgeting tip: A general guideline is to aim to have 8% of the property value available as this will likely cover registration costs.

Check your credit profile

Knowing your credit status and working towards a good credit status is important. It can improve your chances of being approved for a home loan rather than being sent away from the bank disappointed.

An important step towards home ownership is having a good credit record.

A good credit profile is when your credit history has been maintained in good standing for a certain length of time (the specific period varies from institution to institution) by adhering to monthly payments on time.

If you don't already have a credit history, meaning you don't have any debts or credits on your record, then it is advisable to open an account or apply for a credit card.

By using the credit available and paying it back diligently you can start building a reputable credit score.

Tips for a better credit score: Credit providers assess all recorded debt so close all unused accounts where possible.
The more access to credit you have on record, the lower the credit score will be.

What home can you afford? 

Working out how much you can afford when buying a property is simple. 

Use a bond affordability calculator to understand what you can afford when buying a home

An affordability calculator works out the home loan amount you can apply for. 

Your salary after tax, total monthly expenses, interest rate and loan term (years over which you will pay off your bond) are used to estimate the total loan amount you can afford with the monthly repayment amount.

Using the affordability calculator

As a general rule, you should look at spending no more than a third of your monthly income (after tax and deductions) towards your monthly bond repayments. Make use of a bond affordability calculator to understand what you can afford when buying a property.

Calculate what you can afford using the Property24 Affordability Calculator.

Using the bond calculator

A bond calculator is used to calculate the monthly home loan instalments and the interest added over the loan period. This will determine your affordability level by calculating your income against main bond variables and other monthly expenses. 

Calculate your monthly mortgage repayments using the Property24 Bond Calculator.

Apply for a pre-qualified home loan.

Being pre-qualified for a home loan is a vital step as it will confirm the bond amount for which you will be able to qualify.

A pre-qualified home loan will give first time home buyers a good indication of what house they can afford.

 

This amount is not a guarantee from a Bank but rather a guideline to be used when house hunting.

There are two ways in which to apply for a pre-qualified home loan. You can go to the Banks directly, or use a mortgage originator. A mortgage originator will help you apply for a bond at multiple lenders, giving you the freedom to compare quotes, whereas your private bank will evaluate your existing relationship with them to determine your loan rate.

When applying you should have all the relevant information at hand:

• Latest payslip
• 3 Months' bank statements
• Proof of identification
• Other relevant documentation (check the relevant Bank regarding additional information which might be required)

Once your application has been approved, the Bank will issue you with a quote stating information pertaining to the pre-qualified loan. Cited on your pre-qualification will be the bond amount, the interest rate and the instalment amount. It is important to note that the final bond approval is subject to various factors such as the Bank's property valuation and a signed Offer to Purchase.

Article and content sourced from Property24.com

Author: Kobus Erasmis