Welcome to our Get Home Loan Comfy content series where we’ll help you win at adulting by showing you how your once-distant dream of owning a home is completely within reach. Thanks to Bankwest, we've teamed up with Property Journalist and Author Nicole Haddow, to take you through the home buying journey so you feel comfortable and ready to sign that dotted line. And although COVID-19 may have thrown your home loan journey a little off course for now, we're hoping this series can help you jump into the property market when you're ready.
From credit scores and buy now pay later services to your rental history and debt, here’s everything you need to know before you buy your dream digs.
Use Your Rental History To Your Advantage
Although renting while trying to save for a deposit can make things harder and feel like you’re just paying for someone else’s home-owning dream, a strong rental history (in which you’ve always paid your rent on time) can play to your advantage. When it comes to applying for a home loan, your rental history is a clear demonstration of your ability to manage your monthly budget and comfortably cover your cost of living.
Some banks will even treat rent payments like savings, in that they understand you had to save that money each month to ensure you had a roof over your head. “It shows that if you can manage rent, you can likely manage mortgage repayments,” Haddow explains.
“In fact, it potentially puts you in a stronger position than someone who has been living rent-free with family—although, that’s totally great too. People in these positions will still need to show their ability to consistently save, too,” she says.
Sharpen Your Credit Score
When it comes to applying for a home loan, banks need to assess the risk they take on lending you money, and credit scores are just one of the ways they decide whether to approve your loan or not. Ideally, you want to paint a picture that you’re responsible with money, have a strong history of saving, and don’t spend beyond your means.
“Lenders now look carefully at your statements. There are the obvious things that affect your credit score like a bad track record of paying loans, you’ve defaulted on a loan repayment in the past or you’ve got a maxed-out credit card you’re not paying on time,” Haddow explains. “You might also be surprised to know ‘buy now, pay later’ services, not paying your phone bill on time and getting a final notice for your electricity can also have an impact,” she points out.
If your heart is racing right now—don’t stress. Being debt-free and buying your own home are not mutually exclusive. For Haddow, she didn’t pay her debt off entirely and instead chose to service it month to month and explains, “If you do have debt, it’s important not to miss your repayments, that won’t be looked on favourably. You just need to demonstrate you can manage that debt.”
Ultimately, it’s about proving to the bank you’re reliable and on top of your spending, so get into the habit of paying everything on time to improve your score well before you’re ready to buy.
Get To Know Sneaky Additional Fees
Once settlement day rolls around and before you can pick up your shiny new house keys, you’ll need to transfer funds—but it pays to be aware of other additional fees like stamp duty that might crop up. Stamp duty is one of these sneaky fees the government charges to make your property purchase official—it’s like a big, official stamp of approval. The amount charged changes from state to state and some state governments have even abolished or heavily-reduced stamp duty for first homebuyers making a purchase under a certain price point, which is great news, but it’s not the case in every state. “You’ll need to do your research to find out what the rules are in the area you’re looking to buy in,” Haddow suggests.
So, how much do you need to save for stamp duty? It comes down to a number of variables including the price of the property and whether you plan to live in it as an owner-occupier or if it’s an investment property. And in some cases, you can even add stamp duty to your loan amount.
If you’ve got your sights set on a particular property and it looks like you’re going to close the deal, there’s plenty of online calculators to quickly and easily figure out your stamp duty so it’s not a surprise later down the road.
When it comes to getting approved for a home loan, there’s a number of sneaky factors that come into play. Get a handle on your finances today and your future self will thank you. Whatever your home goals, Bankwest can help get you there.
Editor's note: This article is proudly sponsored by Bankwest and endorsed by Urban List. Thank you for supporting the sponsors who make Urban List possible. Click here for more information on our editorial policy.
The information contained in this publication is of a general nature and is not intended to be nor should it be considered as professional advice. You should not act on the basis of anything contained in this publication without first obtaining specific professional advice. To the extent permitted by law, Bankwest, a division of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL/Australian credit licence 234945, its related bodies corporate, employees and contractors accepts no liability or responsibility to any persons for any loss which may be incurred or suffered as a result of acting on or refraining from acting as a result of anything contained in this publication.