Deciding to fly the nest and leave the security of your parent’s humble abode can be daunting – especially if you are soaring towards your first home loan.
Besides being emotionally prepared for regular home loan repayments and long-term investments there are a lot of other questions you should be asking yourself to assess your readiness to enter the mortgage world.
Can you afford to buy your own home?
One of the first things you need to do is to work out how much you can afford to borrow. By searching online you can compare a range of Australian home loans, comparing interest rates and loan features, which will give you an idea of the repayment costs and structures.
“A great way to work out how much you can afford to borrow is by calculating your home loan repayments. As a general rule your total home loan repayments should be no more than 30 percent of your total income,” Alex Parsons, CEO of RateCity.com.au, said.
“Be sure to factor into the final calculations all extra costs you will need to cover such as, deposits, stamp duty, inspections, legal fees, insurance and repairs.”
Do you have any existing debts?
Before applying for a home loan it’s essential to assess your current financial situation and your ability to pay off your current bills and debt.
“Clearing your debt before trying to secure a home loan will play a vital role in the success of your application – as will be paying off your debt on time,” Parsons said.
“On March 12this year the laws surrounding credit reporting changed. In the past you were reported on denied credit enquiries but now they will be reporting on whether you pay your credit on time. This means that every time you pay a bill late a black mark will be registered against your name. This reduces your chances of being able to apply for a loan, so it’s more important than ever to keep on top of your bills.”
Have you saved a deposit?
When applying for a home loan it’s your job to demonstrate that you can afford to make the mortgage repayments. A great way of proving this is by showing regular savings.
“Generally you will need to save a 20 percent, or over, deposit in order to avoid significant lenders mortgage insurance (LMI) costs, which can total into the thousands. The minimum deposit amount lenders will usually accept is 10 percent but there are some lenders who will accept below this,” Parsons said.
“Using a home loans calculator is a great way to help you work out how much you need to save for a deposit.”
Do you have job stability?
Having a stable, permanent job will help you secure a loan and also take some of the pressure off your new financial responsibilities. Just as you have to show up to work each week to get paid – you have to make sure you pay your repayments on time each month, which means having a regular stream of income.
If you are self-employed or own a small business you may have to consider a low documentation (low doc) home loan. These loans cater specifically for borrowers who have trouble providing the regular proof of income paperwork.
Are you ready for independency?
The idea of being a strong, independent adult is appealing and exciting but the reality is likely to be less whimsical and heroic as you imagined it to be.
“Being responsible for making regular home loan repayments is a lifestyle changer as you will have to manage this regular outlay, on top of all the other household expenses,” said Parsons said.
“It’s important to conduct your own research before committing to any big investment or move. If you understand the upfront and ongoing costs involved you will be better educated to assess if you’re ready for such a grand – but exciting – commitment.”
Can you say goodbye to home cooking?
But perhaps one of the hardest things to face when leaving your parent’s home is saying goodbye to your creature comforts. You can say adios to packed lunches and you will have to start doing your own laundry. But most significantly it’s the daily support and love that your parents give you that will be hardest to leave. It’s often the small things that you realise were the biggest things when you finally fly the nest.
Moving out and buying your first home will be one of the greatest life achievements so embrace it wholeheartedly and put in the time to make sure you set yourself up nicely for your future flying solo.