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By Mozo Director, Kirsty Lamont

Looking for your first home is definitely one of the most exciting times in your life. But before trawling through countless real estate apps and getting into the Saturday morning ritual of grabbing a coffee and hitting as many open houses as possible, you’ll need to do some number crunching. Here are the key money must-do’s for prospective first home buyers.

1. Know your borrowing power

Finding out how much you’ll be able to borrow is probably the most important step for first home buyers because then you’ll be able to shop for a home within your budget. There’s no use looking at luxury apartments if the bank won’t loan you the funds for a $400,000 loan.  

When crunching the numbers, it’s also wise to think about the future. If you’re buying with a partner and you’re both working right now, you’ll probably have quite an impressive total income. But isn’t it a good idea to think about what might happen if you lose an income stream or start a family? 

To get an idea of your borrowing capacity, try bcu’s borrowing power calculator. Don’t forget that on top of this you’ll still need your deposit. So if the calculator gives you a borrowing estimate of $400,000, you’ll then need at least a $20,000 deposit so the maximum house price you’ll be able to afford is $420,000. 

2. Show a track record of genuine savings

If you’re thinking of tapping into the Bank of Mum and Dad for your deposit or solely rely on the First Home Owners Grant, then you might be in for disappointment. Your lender is going to want to see that you’ve got a track record of genuine savings so that they can be confident you’re able to comfortably meet your financial commitments when you have a mortgage.

The good news is that if you’ve been saving up for a deposit for months then you’ve already got this sorted. 

3. Get onboard the money tracking trend 

In order to save enough for a home deposit you’ll have had to do some pretty tight budgeting but home ownership involves a whole raft of financial commitments in addition to the mortgage repayments such as council rates, water rates, home and contents insurance, not to mention the general maintenance of your home and its appliances. 

The great news is that these days you no longer have to be a Microsoft Excel whiz to keep track of your spending. There are some great free budgeting apps like 

Pocketbook and the Australian Government’s TrackMySpend app that do it for you.  

4. Clean up your credit 

Before applying for a home loan, you’ll want to make sure that your credit file is in top shape, as your lender will be using this to assess your suitability for a home loan. Scale back on your credit card spending, make sure you pay bills on time and in full and get a free copy of your file just to make sure that there are not any errors or incorrect information. You want to limit any opportunity for the lender to reject your home loan application.  

5. Roadtest your projected repayments

After you’ve figured out the size of the loan you’ll be needing, the next step is to roadtest your potential mortgage repayments. These will probably be quite a bit more than what you’re used to paying in rent but it’s better to do this now before you’ve got a mortgage so that if you find it too difficult to manage you can adjust your property expectations. 

To do this, set up an automatic transfer of your projected mortgage repayments, minus your rent obviously, into a high-interest savings account. The good news is that if you find you can comfortably live with your new payments, after a few months you’ll have a nice little kitty saved up in the savings account that you can put towards some new furniture or one final weekend getaway before you move into your new home. 

6. Be prepared for a rate rise

Right now, interest rates are at record lows but they won’t stay this way forever. It’s a great idea to get into the habit of always putting a little extra on your mortgage. Mozo’s rate change calculator can give you an idea of just how much your mortgage repayments would be if rates were to go up. For instance, on a $400,000 at 4.35% a 0.25% rate increase will add an extra $57 a month to your repayments. 

Picture of Kirsty Lamont wearing nice red jacket. Director of financial comparison website Mozo

Author bio: 

Kirsty Lamont is a Director at financial comparison website mozo.com.au. She is passionate about helping Australians get a better money deal and helping them make better, more informed choices.

Important information

Information on this website is general and has been prepared without taking into account your objectives, financial situation or needs. You should consider whether this information is suitable for your objectives, financial situation and needs before acting on the information provided.