Buying a home isn’t easy and it generally requires you borrowing money to achieve this. In order to successfully obtain a loan, you need to place your financial circumstances in the best possible situation. While you don’t need to be debt-free to secure a mortgage, you still need to provide evidence that you are financial capable of borrowing money, maintain a financially responsible lifestyle can minimise your debt.
Below are a list of ideas that may help you minimise debt in preparation for a loan application:
- Talk to a mortgage broker – As they work form you, they will act in your best interests to propose some flagged issues that you may have in the event you plan to apply for finance. A mortgage broker will help you understand your borrowing capacity and show you how to minimise
- debt. To learn more about mortgage brokers click here.
- Pay off your credit cards – A credit card is an efficient way to meet your cost of living. If used efficiently it can be part of a good cash flow budget plan. However accessing credit is far too easy and many tend to spend more than they can afford find themselves in a hard financial situation. Lenders will look closely at how you manage your credit cards when assessing your home loan application and often look at your credit limit rather than the balance due. This is a good place to start reducing your debt. If you over capitalise by paying to much, you still have the ability to use the funds from the credit card if required. Being discipline is key when it comes to paying out your credit card. Before making any change to your credit card limit, we suggest you consult a mortgage broker.
- Take note of your budget and what you spend – It’s not the most exciting task, but understanding your budget will provide an excellent indication to what repayments you can manage and how you may minimise debt. There are a number of great cash flow budget tools that can help.
- Look at cutting back on your expenses – Once a cash flow budget has been established you’ll soon learn where you over spend. To get the most out of the budget, look at your individual costs and see where you can cut back. You may reduce many of the expenses or you may eliminate one of them all together. Saving $75 per week can result in saving $3,900 per year, while saving $125 per week can equate to saving $6,500 per year.
- Review your expenses in more detail – The cash flow budget demonstrates the cost of each item, but look deeper and see if you can save more more changing service providers. You may save hundreds of dollars changing internet or mobile providers, utilities such as gas and electricity, or even insurance premiums. Before making any change to your insurance policies we recommend consulting your financial adviser or an insurance broker. Saving is one thing, but losing certain benefits can be devastating.
- Making payments on time – This will help ensure you don’t fall behind. Lenders will take a close look to identify if you have any expenses in arrears. You’ll need to keep a clean record if you want to earn the appetite of the banks borrowing you money. Setting up direct debits can be a useful way not to forget, while adding a diary reminder when its due is also useful.
These are just a few ideas that can be quite effective ways to minimise debt in preparation for a loan application. To place yourselves in the best possible situation, we recommend seeking advice. Consult a financial planner, mortgage broker, accountant or anyone else that specialises in establishing cash flow budgets.
At Crest Property Investments, we help source brand new and off-the-plan properties for you. We are passionate about delivering a personal service and want to help you be in the right financial mindset and situation before committing to a purchase.
While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you want to learn more, please contact us. We welcome the opportunity to assist you.
Sept 2019
