According to the most recent Roost first-home buyer home loan affordability index, produced by www.interest.co.nz, it now takes 47.5% of one median income of a person in the 25-29 age group to pay the mortgage on the lower-quartile priced house. Almost half your income? That’s out of the question for most.
For those who are partnered the news is better, with the Index estimating that it takes approximately 22.8% of the median take-home household pay to service that mortgage. Hence if typical first home buyers want to enter the market – they both need to be working!
Of course, before you buy a house your application for a mortgage needs to be successful! So if you’re about to go for your first loan, what are some tips for actually succeeding?
- Have a regular savings history. It can be tricky when you’re trying to juggle rent plus all the other living expenses, but financial institutions do like to see that you have the ability to save regular amounts of money. Whether your savings go into a bank account, a managed fund, a share fund or simply onto your credit card, having a regular savings history will hold you in good stead.
- Have a written budget. Financial institutions also like to know how you spend that money, so put together a comprehensive written budget. The easiest way to get it right is to print out three months worth of your bank statements and look through them to see where your money goes. You might get a shock! When putting your budget together, don’t forget to add in annual expenses such as insurances and car registration.
- Check your credit history. Have you ever defaulted on a loan, forgotten to pay a bill or had an application for credit declined? It’s not a deal-breaker but it helps you to know what information is on your credit history ““ it’s certainly something that the bank will check! Find out more about your credit history here.
- Keep your CV up to date! Another thing that financial institutions like to see is employment stability. This helps to reassure them that you will be able to keep making your mortgage repayments down the track. If you have changed employment frequently or recently, be prepared to explain why.
- Reduce your other debt. Generally financial institutions will consider lending you between 4 and 5 times your annual income, but any other personal debt you have will impact on this. Car loans, personal loans, credit cards ““ reduce your personal debts as much as possible before taking on a mortgage. Also consider reducing the credit limit on these loans as you repay them.
- Have a healthy deposit. It goes without saying that the greater the size of your deposit, the easier it will be for you to impress the financial institution. Saving it is not an easy task for most; the Roost first-home buyer home loan affordability index estimates that based on current income and house prices it will take an individual 3.5 years to save a 10% deposit, and 7.0 years to save a 20% deposit as now required by most banks. Check out Kiwisaver benefits that may be available to assist you.
There are plenty of benefits of home ownership: It’s a great form of enforced saving, a well-chosen home should increase in value and it will get you out of the rental trap. Surely that’s worth the price of a mortgage! So don’t become discouraged. If it sometimes seems unachievable, keep in mind that it’s a goal worth aiming for.