Families looking to enter the housing market face an uphill battle with cost-of-living pressures and rate hikes, but one expert says there are five things they must not do.
Tiimely Home lead broker Barbara Giamalis said would-be homeowners held many misconceptions when it came to applying for a loan that could hold them back.
Among those myths were credit cards and the necessity of having one in order to build credit score, which Ms Giamalis said hindered one’s buying power.
“If you’ve got credit cards, try and pay them off and cancel them before applying for a loan because it gives you greater borrowing power,” Ms Giamalis said.
Contrary to commonly held belief, Ms Giamalis said it was better for first-time borrowers, whose rating won’t be great, to have a lower score and no cards.
“If you’ve got a $10,000 limit then we base it on that, whether it’s on a $0 balance or not, so getting rid of credit cards makes a huge difference,” she said.
“I don’t dislike credit cards – I’ve got one myself – but there’s good and bad credit and it’s bad when you want to borrow the maximum.”
Ms Giamalis also dissuaded borrowers from using pay-later schemes like Afterpay, which could signal financially instability.
So too could non-discretionary expenditures such as gambling, including X Lotto, as well as regular and sizeable cash withdrawals.
“Most lenders, including us at Tiimely Home, will look at the living expenses of a home loan applicant,” Ms Giamalis said.
“If an applicant is using buy now, pay later services more than what they have in their savings, this could be a red flag.
“Services like Afterpay also reserve the right to report negative activity (missed payments) on your credit history.
“Meaning, if you miss payments this could impact your credit score negatively.”
Ms Giamalis said HECS debt could also impact borrowing power and encouraged would-be borrowers to pay it off beforehand if possible.
Lastly, the long-time broker encouraged first-time borrowers to start saving for their mortgage repayments to demonstrate discipline.
“One of the best tips for young people, and one they can start doing now, is to start saving for their mortgage payment before applying,” she said.
“If they’re borrowing $600,000, their payment will be $3000 a month. It’s favourable to see that they’re saving $3000 a month whether that be in rent and/or savings.
“It shows a dedication and willingness to be able to pay your mortgage instead of ‘I’ll go out and spend $500’ because you can’t do that once you’ve got a mortgage.”