There are a number of things to consider before you embark into buying property. Understandably, buying property, whether for investment purposes such as rental properties or your own housing situation, is a huge devotion of both your time and your hard earned money.
One of the challenges, especially for first home buyers, is wrapping your head around all the real estate jargon and understanding the processes involved.
Before you approach a real estate agent or even begin your property search, figuring out your own financial situation is important.
Organising your home loan is paramount to property success. One of the first things you should undertake is learning your borrowing capacity.
Finding out how much you will be able to borrow from a lender towards your home investment is where most real estate journeys start.
Your borrowing capacity will set the tone for your property search and help you to narrow down your search towards property types and suburbs, as well as the financial price range you should be looking into.
While this isn't necessarily a compulsory step to take, it can make the overall experience of buying property far easier.
For example, bankers and lenders need to be sure that any potential borrowers will be able to make their repayments - both in full, and punctually.
When they're assessing your financial situation, they will compare the overall price of the property with how much the buyer has asked to borrow towards it.
This is then factored into the applicant's income, living expenses, and the amount of dependants relying on the applicant and the size of their existing assets to give them a fair idea about their willingness to lend.
There is a way for you to gain your own estimation of your borrowing capacity by making use of an online home loan calculator.
Working in much the same way as a real lender, these calculators will take your income and expenses, and compare this with the size of the home loan you want to take out and the interest rate involved.
Of course, it is far more accurate to speak to a professional about this rather than relying solely on the calculator - but the option is there for you to gauge your own borrowing capabilities.
If you find that your borrowing capacity is not enough for you to take out the home loan you want, or falls slightly short of getting you your dream property, there are a couple of ways you can attempt to increase your borrowing capacity.
One of the main ways is to increase your savings. Lenders are keen to see potential applicants have the ability and willpower to save.
Having a solid savings history and a sizable deposit towards your home will do wonders for increasing their confidence in you and your ability to make repayments.
Reducing your outstanding debt on credit cards and personal loans can also help. Cancelling any unused credit cards or overdraft facilities can go a long way because even if they aren't in use, they're still counted against your name.
By taking all these different factors into account, when you approach your bank or loan lender you should be in prime position to secure the home loan option you need to achieve your property goals.
Keep in mind that if you're approaching a lender with the intention of borrowing more than 80 per cent of the properties overall value, you may have to take out Lenders Mortgage Insurance (LMI).
Due to the sheer amount of money being lent out, this insurance acts as a safeguard for the lender in the event that the borrower is unable to make their repayments for any given reason, and the resulting sale of the property doesn't cover the outstanding loan balance.
