How much can you borrow?
Borrowing capacity is crucial in your home loan consideration. It often is one of the first things that should be clearly addressed. Every lender has an unique way of calculating borrowing power. The borrowing power is based on an individual’s income, normally job, business profits or rent deducted by their liabilities and living expenses, such personal loans, car loans, outgoing rent and basic living expenses.
Consider applying for pre-approval
A pre-approval is highly recommended for property buyers. It can put you ahead of the pack. An average person takes between 2 to 3 months before they can find something worth putting down an offer for. When that time comes having a pre-approval in place would give you the confidence that you need in the negotiation process. Most major lenders can give you a validity of 6 months, so there is ample time to shop around for your dream property. Furthermore a pre-approval allows the lender to conduct your credit history check well in advance so that by the time you find a property, there are no nasty surprises.
What can you afford to repay?
Your home buying budget isn't only based on what you can borrow. You also need to be realistic about your ability to service the loan without over extending yourself so you’ll be comfortable with your repayments.
Your loan affordability is not just the actual repayments you make at a particular point in time. As a rule of thumb whatever the interest rate is at the time of your application, the lender would generally assess your application based on adding a buffer on that rate. This is otherwise known as a ‘Stress Test’ to guard against potential interest rate rises in the future. For example if you rate you applied was 4.5%, lender A might assess your repayment ability based on an interest of 7%, adding a 2.5% buffer.
Hence it is always a lot tougher from the lender’s perspective.
Consider the Rainy day
Factor in potential events such as interest rate rises, work changes or even accidents, and plan for a financial buffer. Ideally you should always have some spare cash to stash away after paying all the bills (including the mortgage). As a guide, your mortgage repayments should not exceed 30% of your gross (pre-tax) income.
At N1, our consultants tackle problems and different scenario from a realistic point of view. We aim to project several scenarios for you, we not only tell you the good, but also will not hesitate to tell you the bad. Having a stable employment is great, but factoring in potential events such as work change or even accidents will prevent unforeseen hardships in your future mortgage repayments. After all a standard home loan is 30 years.
We also provide financial planning, taxation and investment services, so that if required we can offer you and your family the right insurance protections against any hardships.
Talk to your n1 broker
Your dedicated home loan specialist can take you through all the available options and conduct a thorough needs analysis to help you determine the right loan option for you.
We don’t just help in arranging the loan, we continue to help you throughout the life of your loan to ensure everything is as smooth as it can be.