Tips to ensure your finances are in order before buying your first home

Resolve Finance director Don Crellin offered the following tips:

Focus on savings

More and more lenders are now looking for personal savings and while you do need to have a deposit, there is a focus on “genuine savings”.

This refers to savings that have been made on a regular basis or have been held in the account for a defined period of time.

It is not just about the balance that you have in your savings account, it is also all about how it got there; the banks need to see that you can be diligent and stick to a plan.

Pay your bills on time

Your credit history is exceptionally important and no matter how small your bills may be, a late payment that triggers a default on your credit record could mean the difference between loan approval and decline.

Often a company provides a degree of leeway past the due date before lodging a default on your credit file, however keep in mind they are all different.

My advice is to always pay bills on the due date to avoid the risk.

If you are having difficulty with making the due date, contact the provider and let them know.

Most companies are willing to work with their customers to be able to resolve the issue as long as they are made aware.

Cut back on credit

Lenders assess your credit card commitment as if it were fully drawn to its limit, regardless of how much you have owing.

For example, you may have a credit card with a limit of $15,000.

Even if you have nothing owing on it at the time of the home loan application, the lender will make allowance for a monthly repayment of about $450.

This can reduce borrowing capacity on a home loan by between $50,000 and $60,000.

My advice would be to reduce or close any credit cards ahead of applying for your home loan.