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Oh baby! Why you should plan ahead for your home loan

Oh baby! Why you should plan ahead for your home loan

RateCity investigates how having kids can affect mortgage applications in the US and if this could affect you.

August 8, 2010

Are you in the market for a home loan? Are you also considering having children at some stage? Whether you are thinking about having kids in three months or five years time, your plans should not affect your mortgage application, right?

According to an article in The New York Timesmortgage lenders in the US are getting tougher on prospective borrowers planning to expand their brood by further tightening mortgage lending criteria.

The article states that as a result of lenders becoming more conservative they have implemented more thorough verification of personal details including the applicants’ incomes before the loan settles as well as throughout the term. This means that if the applicant is considering taking parental leave, either for a number of weeks or months, their application may be denied or they may be told to reapply when their income changes.

“This might be good for lenders to help them keep the risk on their mortgages low, but it would bring a lot of worry for many home owners who are starting a family,” says Damian Smith, RateCity’s CEO, “because their guaranteed income – what they have earned in the past year or what they are planning to earn in the following year – might not be enough to meet repayments and expenses according to the lender.”

Do Australian lenders concur?
Thankfully in Australia, things are done a little differently. Our privacy laws prohibit lenders to ask prospective borrowers about their future family plans. They can however ask applicants to disclose the number of dependents to determine your estimated living expenses.

Smith says, “…those in the market for a home loan should think about the future and plan ahead.”

Be better prepared financially
Children unfortunately don’t come cheap; the federal government’s Australian Education International website estimates that on average it costs Australian households $3600 per year for their first child and $2700 per year for every subsequent child.

So if you are thinking about starting a family it is important to factor these costs and changes into your living expenses. When budgeting for your mortgage, remember to add approximately $300 per month for each child.

And if you are a first home buyer searching for your first home look for a mortgage with a lower rate of interest and lower fees by comparing home loans online. At the end of the day you will benefit from being over prepared than the risk of losing your home.

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