Friday, 28 June 2019

There are a lot of boxes to tick when buying a home for the first time, especially when it comes to getting your finances in order

Banks are being more cautious when looking at people’s ability to service a loan long-term. What that means for you is that you need to present your finances at their best when you sit down with a mortgage broker or lender.

To do this, give your finances an overhaul with our checklist for getting your finances in order.

Save for a deposit

Saving for a deposit takes time and can require a lot of discipline in your day-to-day spending. Here are some ways we suggest to help kickstart your savings:

  • Develop a savings plan.
  • Cut back on the extra expenses.
  • Get a high-interest saving account.
  • Automate your savings.
  • Consider investing in shares or managed funds.

Set up a high-interest savings account and put a portion of your pay into it every time you get paid, with the goal to save up to 20 per cent. Remember that saving 20 per cent of a home loan is not always realistic. You can secure a home loan with as little as a 5 or 10 per cent deposit.

Clear your debts

Increase your borrowing capacity by clearing all your debts. This includes paying off any credit cards, store cards, personal loans and/or student loans. Some useful tips to help you clear your debts:

  • Tally up all your debts so that you can get a clear picture of where you stand.
  • If needed, seek professional help tackling the debt.
  • Set a budget, one that is realistic and that you will stick with. If you can afford to, put more towards extra repayments.
  • Prioritise your debts. This can be either paying off the debt with the highest amount of interest or paying off the smaller debt first which will give you a sense of achievement and motivation.
  • Make your repayments automatic i.e. set up direct debits from your bank account that automatically help you each month.

Set a budget

The only way you will reduce your debt and meet your savings goal is by setting a budget and sticking with it.

Over a few weeks, take note of how much you spend day-to-day. Consider the necessary expenses (rent, bills, food etc) and the extras (subscriptions, eating out etc). You will quickly see a pattern in your spending habits, pinpointing the areas where you can save money.

Establish a realistic budget that will allow you to reduce your day-to-day living expenses but will also give you enough leeway for those one-off expenses. This will give you a better chance at sticking to the budget over some time, and ultimately to achieving your real estate goals.

Meet with a lender

Whatever stage you are at with your finances, it’s good to meet with a lender to get an understanding of where you are at financially. Based on your current income and living expenses, they will be able to give you a rough idea on the amount you will be able to borrow, which will in turn guide you on how much you will need to save for a deposit and what you need to do to achieve that. There are also many apps available to help you calculate the repayments based on your savings and a potential loan.

Having a set figure to work towards can help motivate you to reduce your debt and save.

The banks also periodically offer incentives and special offers to help you with getting your loan off to the right start.

Getting all your finances in order can seem like a daunting task, but it will put you in a position to being one step closer to achieving your real estate goals.

To take the next steps in buying your first or next home, please register online to customise your Livingroom Estate Agents search experience.

For further information please email or call the team on 01481 715555.

Keep Reading