What Do You Need To Buy a Home?


Buying a home is a big investment, and it may be the biggest purchase you will make in your lifetime. Therefore, it requires careful consideration and financial preparedness. Before you purchase a home, you will need to meet several requirements, including your credit score, Debt-to-income ratio, and a deposit, among others. 

If you are looking to become a homeowner, this guide will take you through the key elements you need to buy a home. 

1. Save for a down payment and closing costs

The first thing you need to do when planning to buy a house is save for a house deposit. The deposit you need will depend on the value of the house you want to buy. Ideally, most lenders require a 20% deposit on the property. Paying a lower amount will make you liable for the Lenders Mortgage Insurance (LMI).

You also need to save up for closing costs, which can range from 2% to 5% of the home’s purchase price. These costs include appraisal costs, title search, application fees, escrow fees, credit report fees, and more.

2. Credit Score

One of the main things that lenders check when you apply for a home loan is your credit score. This helps lenders determine your credit history and gauge your ability to repay loans without any issues. If you have a high credit score, you will get a good interest rate on your loan. A good credit score in Australia ranges between 661 and 850, but the exact score will depend on your lender.

3. Choose a Lender

Finding a reliable lender is crucial when buying a home. Different banks have different loan rates and repayment periods Hence, it is essential to find a lender that will meet your needs and preferences. Your current bank may offer you competitive rates since you are already a member. Other options include credit unions, online lenders, and smaller community banks. 

4. Debt-to-Income (DTI) Ratio

The Debt-to-Income ratio is the percentage of your gross monthly income compared to your monthly debt payments. Lenders use DTI ratios to assess your ability to manage monthly payments and determine how much you can borrow for a home loan. A good DTI should be below 35%. Having a high DTI of more than 43% may turn off potential lenders.

5. Mortgage pre-approval

Before you start shopping for a house, it is paramount to apply for a mortgage pre-approval. Your financial documents are crucial when applying for a mortgage pre-approval. Some of the documents needed for the application include your proof of income, assets, debts, employment verification, tax returns, and W2 forms, among others. A mortgage pre-approval helps make your house hunting process faster and easier.

6. Home loan

Once you have found a home you like and have agreed on a buying price, the next thing is to apply for a home loan. The common mortgage term is 30 years, but you can opt for a shorter term depending on your preference. Shorter terms, however, come with higher monthly repayments. Once you submit your application and all the relevant documents to your lender, your loan may be approved within four to six weeks. 

Before you make the big move of buying your dream home, make sure that you have enough savings, a good credit score, and a low DTI. Having a good real estate agent is also essential, especially if you are buying your first home. 

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