Everyone wants to shortcut the time it takes to save for a home loan, but some shortcuts are more dangerous than others and can risk your ability to secure a loan. Here we’ll alert you to some of the bad practices that can cost, rather than save, time and money.
1. Don’t use a personal loan to cover your home loan deposit
Lenders want to see that you are capable of consistent, ongoing savings, which reflects your capacity to repay a loan. Personal loans or any other borrowed funds are usually perceived as ‘non-genuine’ savings.
There are lenders who will allow non-genuine savings as a deposit source if borrowers can demonstrate a good income, clear credit history, little debt, and a certain level of savings. Restrictions may also be placed on how much can be borrowed.
Even if you choose not to disclose to the lender that you are using a personal loan as a deposit source, it will be picked up when the lender checks your credit report as part of the mortgage application process.
2. Don’t take on new debt
Taking on a new car loan or credit card while saving for your deposit will mean less money to put away. Delay major purchases and avoid new commitments that will eat away at your savings.
3. Don’t fall behind on other debts
Avoid channelling all your spare cash towards your deposit while ignoring other debts. Late payment and defaults can be recorded on your credit report. When it comes to applying for a home loan, your lender will use the credit report to assess your suitability.
4. Don’t set your saving goal too low
Not saving enough leaves you vulnerable to rate rises because you’ll have a larger mortgage to repay. Additional fees like lenders mortgage insurance (LMI) must be paid if your deposit is too small. So how much should you save? It’s important to first understand your borrowing power, and this is where we can help. With many different loan products available, we can give you an overview of the lending limits from a range of lenders and help you calculate what you can realistically afford.
5. Don’t make large deposits you can’t document
Although a certain amount of your deposit can be ‘gifted’ from family or elsewhere, lenders want to see that most of the deposit comes from your own funds. Any large deposits will need to be thoroughly documented.
6. Don’t save after you spend
Don’t live off your salary and simply save what’s left at the end of the pay period. As soon as your salary is paid in, put aside a portion of it in your deposit savings account. It’s a foolproof way to spend less and save more.
Want to see how your finances stack up for you to afford your own home? Our 20 Minute Free Financial Health Check will help you map out and understand your current financial position, followed by exercises to help identify your financial goals with strategies on how to get there.Get started now!