Five things to know if you want to buy a house next year
Is 2022 the year you buy a home?
As house prices have risen at a breakneck pace over the past two years – up about 30% year-on-year in October – there are signs that the market is cooling off.
Despite their challenges, first-time homebuyers have taken over properties – accounting for over 26% of the market in the September quarter, their highest proportion on record.
If you’re looking to buy a home in the next few months, brokers say there are some things you can do now to make the process easier.
Get your bank account in order
New rules introduced in December will force banks to take a closer look at applications to make sure people can afford the loans they are offered.
This means that you will likely need to provide more explanation for anything even slightly unusual in your bank account history.
Bruce Patten, advisor at Loan Market, recommends that potential buyers budget so they can show a lender where their money is going and what they are spending it on. They might also find it helped them save more, he said.
âMake sure your rent and savings are what your mortgage payments will be like, for example, if you’re going to borrow $ 1 million, it’s going to cost you about $ 1,200 a week. If you pay $ 700 per week in rent, you should also save at least $ 500 per week. This shows the lender that you can afford the new mortgage.
âCut down on spending on unnecessary things. Banks now look at all fixed expenses when calculating what you can afford. If you don’t need Netflix or Lightbox, cancel it. If you have short term debts such as car loans, Afterpay, credit card debt – try to clear them first, they will have a significant impact on your borrowing capacity.
Broker John Bolton, founder of Squirrel, said people should be wary of taking on more debt.
âAvoid buying now-pay later like Afterpay during the Christmas holidays and monitor your account behavior. Don’t miss any payments during the holidays. If you have a credit card, make sure you always pay the minimum on time. “
Sort your credit score
Some people only find shady things in their credit history when it comes time to apply for a loan. A first-time home buyer discovered that he had been wrongly awarded a parking fine and sent to a debt collector. She was able to have the default removed from her credit report, but only after having already been refused by a bank.
Check your credit score and ask yourself what is wrong with your file. Patten said it was important to keep control of all commitments if a mortgage loan application is in your future.
“Make sure you pay things on time, the bank now has visibility into your payment history for the past two years, they can see if you pay personal loans on time, credit cards with other lenders, phone bills, utility bills .. This is called a full credit report.
Be informed about your banking transactions
When it comes to applying for home loans, banks tend to try and prioritize the needs of their own customers. But you can maximize your chances by spreading your banking operations a bit so that you are a customer of several banks.
âIf you are a couple, shared bank. Banks currently only approve customers of major banks with less than 20 percent deposits, so having two banks improves your odds. Talk to a mortgage broker first. You’ll need a minimum of three months of salary paid into your account to qualify as the primary bank, but with some banks it’s six months, âBolton said.
Consider what you want to buy
New loan-to-value rules that limit low deposit loans make it more difficult to get loans on existing homes. But if you’re open to other options, you might find the path to your first property a little easier. Bolton points out that off-plan properties and new construction are exempt from the rules, so you should be able to get a loan with a smaller deposit. Were you able to work remotely during the pandemic? Could this create an opportunity to buy a home in a location where ownership is cheaper?
Sort your KiwiSaver
Check the status of your KiwiSaver account and how much you have in your fund. If you’ve been contributing for a while, you might be pleasantly surprised: The stock markets have had good years, which will have inflated the balances of many people. What kind of fund are you in? If you plan to withdraw your money in the next year or so, it may be a good idea to reduce your risk. Find out if you might be eligible for extras like the First Home Grant. Your provider should be able to walk you through the cash withdrawal process once you’ve identified a home you want to buy.