Buying a house and getting a mortgage can be one of the biggest debts that you take on in your life. But if you’ve heard of the good debt, bad debt concept, this is the good kind of debt and can be a smart decision – provided you have done your research. Not only does it show that you have grown up, but that you are ready to take on responsibility.
Just like any major decision you may make in your life, timing is the key to everything. Many a time people buy a property – only to find that they have gone above their budget or bought in the wrong suburb or paid too much for a property.
Here are some signs to help you understand if you are ready for a home loan.
Sign # 1: You’ve Learned How to Plot Your Spending aka Budgeting
If you don’t know how to budget, then a mortgage may not be for you yet. Once you sign a loan contract, it will be an inevitable part of your budget for years. You need to be equipped with the right skills in allocating your money so you can pay for it without being late or without incurring any extra charges for being late.
Sign # 2: You Have a Stable Means of Income
If you are the kind who likes to move from one job to another frequently, maybe now is not the time to buy a house. Lenders typically like to see some job stability as it gives them comfort that you will be able to pay the mortgage.
In case you are a contractor or self-employed with sporadic income, make sure you have enough savings for at least 5 – 6 months of living expense including mortgage repayments. Always be prepared with a backup plan for worst case scenarios. Make sure you have your insurances in place. Because if you miss repayments for a long time, not only will the bank re-possess your house, your credit file will be damaged for a long time.
Sign # 3: You Know What You Want
Careful consideration when purchasing a property is essential. Impulsive shopping when it comes to shoes, bags, clothes and other things may not be quite expensive but this does not work with a property purchase! Before deciding to take up a loan, you need to be sure of what your maximum budget is. This is equally true for first home buyers and investors alike. The purchase you will make should be something that suits your lifestyle. Research on different kinds of houses and properties based on your ‘family situation’ for an owner occupied property and based on suburb/growth/cash flow for investors.
Sign # 4: Know What to Expect
Talk to a few people with mortgages to understand the pros and cons. It’s going to be liberating to buy your first property. But that liberation is coupled with a lot of responsibilities. There are a lot of hidden costs which you may not be aware of. These include and are not limited to council rates, strata fees, water rates, insurance, higher electricity bills and maintenance costs. Be prepared and know how it’s going to be for you, financial wise, for the next few years.
With low interest rates in current times, it can be very tempting to purchase a property. Use the signs above as a guide to help you take the first steps to a great investment. Consider the factors listed above and once you’ve signed the mortgage, let me be the first one to say “Congratulations!"
Obu Ramaraj aka 'The Mortgage Angel' is the Director of Smart Money Solutions, a mortgage broking firm helping female professionals with their home loans. She is also the author of "Smart Women, Smart Home loans", blogger and a speaker.
Twitter: @smartloanbrokerWebsite: www.smartmoneysolutions.com.au