This article is brought to you by the NAB Life Moments hub. While I am not an NAB customer; I do love their tips and tricks for first home buyers. I found it quite refreshing to see such practical advice and real-life case studies to read. Big shout out to NAB for supporting Savings Guide.
Here are the things you need to know:
As a first home buyer looking to get into the property market, you need to start taking your affairs seriously. It’s time to hustle. Owning a home is a big responsibility and purchasing a home favours those who are disciplined.
In this guide, I will show you how to get yourself in order. I will share with you some of the conventional and unconventional tips to help you get into the property market, from personal experience.
TLDR (too long didn’t read) – you need to focus on saving money (and reducing spending), paying off your non-mortgage debts while simultaneously increasing your earnings and making it dead simple to see and assess your fixed expenses.
Immediately start saving your money and reducing your spending
When applying for a loan, banks want to see that you have the ability to be disciplined in your approach to saving money. Further to this, every dollar you save will also reduce the amount you actually need to borrow from a bank – a win/win for both parties. A deposit of 20% or more will also negate the need for lenders mortgage insurance.
To achieve this, you need to begin by reducing your spending and building up your savings account as fast as possible. You will benefit from a stand alone (and ideally, hard to access) high-interest savings account that you can use to stash your cash.
A few tricks to rapidly build your savings to get into the property market include;
Acting as if you’re already paying a mortgage. If you know how much money you’ll likely end up borrowing, act as if you’re repaying that amount on a monthly basis. Use a principle and interest home loan calculator to tell you exactly how much your regular repayment would be and budget to pay that into your savings account before any other expense. Never miss a savings repayment; save money and prove that you are capable of affording that mortgage amount.
Culling expenses and saving the money instead. Stop paying for subscriptions and unnecessary recurring expenses. For instance, you could reduce your mobile plan, internet package or stop paying for a subscription such as Spotify, Netflix or Stan. So many first home buyers end up culling expenses AFTER they get a mortgage (due to realising they can no longer afford it) – so why not get a head start on everyone else and cull the expense BEFORE you get a mortgage, to further boost your savings account?
Pay off your debts and close your lines of credit
When assessing how much a bank will lend you, banks will look at how much debt you currently have. Not only the amount of debt currently owed, but ‘available credit’, e.g. the limits on your credit cards and similar and what you could hypothetically spend.
Aim to pay off (and close) all sources of debt. This will help you obtain a mortgage and most importantly; afford it into the future. Most mortgages come with their own credit card, so assume you will gain access to a credit card once again in the near future.
A few tricks to rapidly pay off your debt to get into the property market include;
Using the debt snowball method for credit cards. List all of your credit card and personal loans. Detail the amount you owe and the interest rate of each. Aim to pay off the lowest balance first, irrespective of interest rate; this is what they call the debt snowball method. It creates a snowball of motivation. Technically, it’s always better to repay a high-interest debt first, however, the snowball method has been shown to increase motivation and in turn help people stay on track.
Increasing regular repayments on a car loan. Increase your car loan repayment by as much as you can afford. If you increase the repayment by 20%, it will cut 20% off the term of the loan. This will ideally put you on a path to repaying the car loan prior to obtaining a mortgage. Some car loans have early repayment fees, so be careful. The aim should be to repay the car as fast as possible while juggling your priorities of saving money and closing down high-interest debts (such as credit cards, mentioned above).
Create a plan to increase your earnings
Saving money is mandatory, however, people often overlook the idea of trying to earn more money. Employed by a company? Look to get a pay rise by showcasing greater value to your employer and making an effort to document and explain the value that you bring.
Alternatively, look to start a side business using your hobby. Consider doing freelance work if you possess a skill that is in demand. Creating a side hustle to earn a little extra cash can do big things for your savings and ability to repay your future mortgage.
Focus on documenting and proving your expenses
A key component to getting a mortgage is showcasing exactly how much you spend per month on expenses, so as to work out what you can reasonably afford to repay. While the aim should be to remove any superfluous expenses altogether, there are a few tricks you can use to make sure your expenses are under control and readily available to share with your potential mortgage providers.
Create a stand-alone account that simply receives your pay and has each of your expenses automatically deducted. Pay yourself an allowance from this account; this is the money you would use to go out for dinner, repay a friend, see a movie and what not. Doing this creates a very structured and simple set of accounts that will help you prove your expenses to a lender and cast no shadow of a doubt over how much you spend each month. Remember, similar to debts – you want to limit your expenses and use the money you save to instead boost your savings. When it comes time to sign up for a home loan, you can easily prove your expenses by printing off three months of statements from this stand-alone account; easy.
This article is a NAB paid promotion and was written in collaboration with NAB. As always, all opinions are my own.