Top 10 things you need to do before applying for a home loan

We all love a check-list (note financial geek here) but you’ll find a checklist is a great way to make sure you have all you need before applying for a home loan. So here they are:

1. Get a hold of your credit file/score. It’s a fairly straight forward application on https://www.finder.com.au/credit-score and it’s FREE. Knowing your credit score will help you determine your list of lenders.
2. Organise and prepare your paperwork. This one sounds like a no-brainer but it’s amazing the amount of people who don’t do this. Applying for a loan is very straight forward IF all the paperwork has already been collated.
3. Start saving now. Lenders love to see a rainy day kitty looking healthy as it makes you look less of a risk for them.
4. Look at re-financing, this is a great way to free up some cash and make your disposable income look healthier which lenders LOVE.
5. Compare lenders before you decide. There are loads of loan comparison sites like www.canstar.com.au. Be warned of some of the extras than come with a lower variable interest rates, for example, high exit fees, high management fees that essentially cancel out the interest rate savings.
6. Don’t quit your job or start a new business. It makes you look riskier to a lender and they don’t like risk!
7. Pay all your bills on-time. Did you know that even an overdue (not even a demand letter) on your council rates can end in a negative decision from a lender?
8. Reduce the limits on your existing credit cards. Lenders look at credit available to you and not just what debt you actually have to lower them to a decent and comfortable level in line with your budget.
9. Check if you are eligible for any concessions like a first home buyer grant or a stamp duty exemption depending if you’re an investor or if you’re buying an existing or a new dwelling.
10. Speak to a professional, that’s right. Call me and I’ll walk you through it!

Posted in Home Loans, Uncategorized

How to keep your emotions in check when purchasing a home

Buying a home is an emotional experience, especially if it’s your first and you can’t escape it. What you can do, though, is seek to understand how emotions affect your thought process, the price of your home, what you’re willing to pay and what you’re willing to overlook.

Emotions are important; they influence everything we buy, including a home. But if you let emotions rule you on house purchasing it can have disastrous results.

Firstly, emotions aren’t all bad, they are necessary for us to process daily. One positive to think about when considering emotions is your gut reaction; this is an emotional and immediate response to a house. Listen to it, instincts are important, if you’re gut reaction is to not buy this house, listen.

Similarly that first response to a house may be overwhelming adoration for the house, you think it’s perfect, sure the tap pressure is bad and the light isn’t quite right but you have that feeling in the pit of your stomach that says “it’s perfect”. It’s hard, but keep that in check. You clearly love the house but don’t let it cloud your judgement on important aspects like water pressure and light, (two very important things to consider when buying). This could be used as a negotiating tactic on your offer.

First time buyers have a range of emotions when house hunting, from frustration of the process, nervousness of losing out, disappointment and stress: just to name a few. But home buyers aren’t the only ones who feel it, home-sellers let their emotions get away with them also so be aware of this when looking to purchase a home.

Whether it’s due to their growing up in the house or that they painstakingly re-tiled the whole house or lovingly decorated the house they have an emotional investment in the property and this can be reflected in the asking price. Some home-owners, especially those that sell without an agent, may not really understand how to value their home and push up the asking price due to that emotional investment they have put into the house. Make sure you ask the sellers lots of questions to weed out if they are asking more for the house based on their own blood, sweat and tears.

Lastly emotions can put you on a rollercoaster when buying a home, ask yourself lots of questions and try not t make knee-jerk decision. Ask yourself “What would Martin do?” The answer will always be “sleep on it, think on it and ask lots of questions.”

Posted in Living, Uncategorized

Negative Gearing – A Political Game.

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Property has always been seen as an easy mark to raise taxes and duties but the price we pay may be higher than what can be forecast during this election campaign.

Negative gearing is going to be an election pressure point. Both sides of the government seem to be aiming for the same dollar here but just under different scenarios. They both see the cash cow and are willing to milk it for all it’s worth; some for political outcomes and some for economic reasons. The Government has already required banks to increase interest rates to the investor market, it didn’t deter the investors.

If we take a look at the UK market it introduced higher requirements for the more properties you own in an attempt to crack down on investors dominating the market, but has it worked? No, because property investors are innovative and will use some interesting, slightly dubious, tactics to avoid these tax requirements. None of which I will name here as a) they sit in the grey area of illegality and b) I don’t want to give anyone any ideas.

Tim Colebatch from Inside Story notes that negative gearing needs to be looked at “because the negative gearing tax break alone is now so widespread that it costs revenue – that is, other taxpayers – between $3bn and $6bn a year, depending on the level of interest rates. In effect, other taxpayers are subsidising the beneficiaries in their aspiration to become landlords.” It’s an interesting point he puts forward.

Mind you it’s been tried before in Australia, an attempt to revolutionize negative gearing. Paul Keating tried to abolish it as part of the Hawke government in 1987. It failed terribly and full negative gearing was reinstated later that year. Many commentators will argue this temporary lift on negative gearing actually increased rental prices and stalled the market but there is no concrete proof of this.

Regardless of who gets in this year the old adage of “an old tax is a good tax means” springs to mind. Regardless of who gets in there will be no going back from either side of government.

Posted in Misc, Uncategorized

The Family Home

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We have huge under-utilised assets in the family home; why shouldn’t it be used to accumulate wealth for those still earning a living and contributing to the system? If we take that away where will the money go? Certainly not in to our shaky share market with dismal results – maybe offshore to greener pastures? The worst possible outcome for home owners and our economy.

Our personal homes are a store of wealth and it provides more for self-funded retirees than anything else. Many baby boomers have worked hard to pay off their houses and yet are most likely to be the ones who will suffer the most having built up small holdings over the last 30 years.

The family home is the biggest asset most people will own in their lives and yet it is often overlooked as a way to build wealth or to form part of a financial plan, why? Are owners afraid to us this wealth due to risk factors or possible an old school mind set of passing the home to the next generation which forms part of their inheritance?

From renting a room to a reverse mortgage, the family home can be used to build wealth without a huge amount of risk involved.

Treasurer Scott Morrison has a plan in his “tax reform” to encourage home owners to release billions of dollars locked up in our homes. His idea is one in which retirees could sell the family home for a smaller property and pocket some or the entire surplus without reducing their eligibility for the pension and other government benefits. Sound too good to be true perhaps? Would letting go of your biggest asset, and one that can be used to build further wealth, be something attractive to you?

Posted in Misc, Uncategorized

Housing demand slowing, but no bubbles bursting

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It’s going to burst! Property heading for disaster! We’ve all seen the headlines, they make great click bait and generally creates panic for everyone, home owner and mortgage lender alike. But let’s take a step back and look at some facts, they make the world go round and they paint a varying picture than many headlines.

Yes owner occupier lending declined 3.9% in January, more than reversing a 2.7% increase in December. The number of loans extended has flat lined, although new lending remains at a relatively high level per month. OK so what does that translate to? It looks like lender is declining but it also means that new home owners are still applying for loans at a steady and relatively high level.

Now, here is where it gets a bit sticky: The value of home loans for investors declined 1.6% in January, and has declined in seven out of the last nine months. While the breakdown between owner occupiers and investors may continue to be distorted by reclassifications, the value of total loans declined 3.4% in January. The annual pace eased to 2.7%, the weakest in 3½ years. So while this means that softer loan growth might be signalling further moderation in housing demand nonetheless, home lending remains at an elevated level and is suggesting that demand for housing remains healthy.

In terms of annual growth, loan growth in NSW continued to be the strongest with Victoria a close second. There was moderate annual growth in the ACT, QLD and softer growth in SA and the NT. Loans in WA and Tasmania declined in the year to January.

A moderation in home lending sits with the view of softening housing conditions this year. Low interest rates and an improving labour market will continue to underpin demand.

It’s important to understand that new data is always coming in. A clearer picture should emerge once the data starts to come in the traditionally quieter summer months.

Posted in Misc, Uncategorized

Reserve Bank leaves interest rates alone.

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For 12 months straight the Reserve Bank has left interest rates on hold, steady at 2% since last May 2015. But what does that mean?

Though the cash rate has been left at 2% it’s possible that the RB is concerned about a rising Aussie dollar, especially in the face of a recovering non-mining economy. But what does it mean for the average home owner or potential home owner, well it looks like good news for some and less good news for others.

If you’re not on the housing market yet keep saving, regardless of what interest rates do right now, many banking institutions are keeping up the competitive pressure to get your business. If you already have a mortgage make sure you’re looking at whether you could get a better deal with another lender. If you’re an investor keep an eye on chatter about rising inflation warnings that may increase interest rates so be sure to inflation-proof your portfolio.

Many are saying though that this low rate environment is just the calm before the storm, and that rate rises are on the horizon. Typically what happens when rates hit rock bottom is people borrow to their maximum capability (always a bad idea) as when, and they always do, rates rise to balance the economy, people start to miss their home loan repayments. So what many institutions do is double their interest rates when determining the serviceability of the loan, but what does that actually mean? It means that the banks are assessing their borrowing power using double the actual interest rate. Sounds unfair right? Well in reality it isn’t unfair, it’s part of being a reasonable lender but your average first home buyer isn’t going to understand that.

Sally Tindle from Rate City states “ these moves are designed to limit the number of people living in mortgage stress and avoid seeing Australians being evicted from their homes should rates start to climb.” Which of course is a more eloquent way of saying it’s to protect people from the stress and difficulty of not making their mortgage payments.

Posted in Misc, Uncategorized

Are you on top of your cash flow?

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What is cash flow? Its technical definition is “the total amount of money being transferred into and out of a business, especially as affecting liquidity” this pretty much translates to how many money you have at your disposal, cold hard cash!

It’s important to remember that your liquidity is one thing you need to concentrate on, as a business, from the get go, not when it’s too late. Cash flow is in the top 3 reasons small and medium business fail.

Plan ahead, most businesses know their expenses well, so plan for them, if you know a big purchase is coming up in 12 months’ time, divide the cost by 12 and put that amount aside each month so when the expense is realised it won’t dent your cash flow.

Cash comes from payments of accounts right? So make sure you make your payment deadlines clear and whether there are any penalties for a late payment or even more appealing a small discount for paying on or before the due date.

Remember when your parents told you to put a dollar away per week for 18 years and you’ll have $936? Well the same is true for business, put aside 5/10% every invoice that will cover your GST or ATO payments, believe me it’ll make tax time much more pleasant.

A business loan is also an excellent idea if you’ve got money coming in but need access to cash right now for a big purchase, this type of forward planning will benefit you in the end.

The saying “Cash is King” doesn’t come from nowhere so plan, be smart and think forwards at all times.

Posted in Misc, Uncategorized

Household Debt

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Australian households have more debt compared to the size of the country’s economy than any other in the world. As of the third quarter of 2015, it now has the world’s most indebted household sector relative to GDP, according to LF Economics’ analysis of national statistics.

The overwhelming majority of this debt is mortgage debt, with investors and homeowners, mainly new and marginal entrants, having massive mortgages.

The data from LF Economics points to the largest housing bubble on record with the house prices from 1996 – 2015 rising by 141% and our income, inflation and construction costs not keeping up.

So what does that mean? Well in order to address this issue it will possibly mean bursting the said bubble and picking up the financial pieces as home owners face the possibility of having huge mortgages on a house that is worth less than their mortgage, this is called negative equity or upside down in their own homes.

Does this mean people should just not buy a house? Definitely not, it means home buyers need to be smarter in their decision making. Ensure you don’t borrow more than you can afford, including a buffer for interest rate rises and most importantly don’t pay too much for the house. Look to suburbs that aren’t inflated in the property market, look at a home that needs work, as you’d get it for a better price and can spend time doing it up, using your income, and ultimately increasing its worth.

Lastly to protect yourself against household debt make sure you do your research and more importantly have a solid household budget and stick to it!

Posted in Misc, Uncategorized

Why re-financing is good for you!

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Let’s face it the paperwork involved in applying for a mortgage is enough to turn anyone off re-financing, am I right? Right! BUT re-financing doesn’t just apply to your home and it shouldn’t be feared, it should be embraced and here’s why. Businesses are competing for your business at all times so take advantage of that so you can secure a lower interest rate on your home or credit card or family car. What does this mean? It means lower monthly payments and ultimately the ability to pay off your debt faster which takes the pressure off the family budget like nothing else.

Re-financing your mortgage, yes it’s a pain in terms of paperwork but it also allows you to access any equity in your home (always be careful not to take too much of this equity) and this equity can then be used to consolidate other debt, such as the car or credit cards or it can be used to finance a renovation on your home, adding extra bedrooms or bathrooms for example.

When it comes to re-financing the car and credit cards, well that’s a different story, much quicker paperwork wise, phew, and must faster, assessment wise.

Also be sure to shop around, there are loads of finance comparison calculators like Rate City or Canstar so before you commit make sure you get the best deal you.

Another point to remember, especially for the mortgage, is not just the interest rate, of course that’s most important, but also the loan term needs to be considered. If you’re paying down other debt or focusing on retirement savings, throwing more money at your mortgage may not be worth it.

Lastly be careful for any hidden fees when dealing with a new lender also, an account management fee or annual fee may offset any savings you make in switching lenders so even though you’ve done the forms before, don’t skimp on reading them as it may come back to bite you in the you know where.

Posted in Misc, Uncategorized

Cash is King, but who can help when it’s not?

cash

When it comes to business start-up finances we all know cash is king, but when it seems like cash is more like the court jester who do you turn to for help?

The bank? Well, they can be tough task masters and if they are willing to help the procedure can be too slow to be of any immediate help to you and your business.

Believe it or not having some credit cards up your sleeve (unused) can be very handy in these types of situations when cash flow is slow. These cards are are not for good times but for the needy times. If you go to a few providers you can add up quite a stash. Do remember though that applying for these credit cards will impact your borrowing power BUT when you are in need it’s quick to cover the gaps. It can also be very expensive if you have to draw cash but it can also be very cost effective if you use them to pay for goods and/or services and pay back before the due date.

Having a cash flow issue can be a nail in the coffin for small business but it can be avoided (or at the very least handled) and it all comes down to planning and keeping your cash as free as possible. There are ways to try and avoid this cash flow issue:

Try not to pay cash for things like vehicles or office equipment, renovations of even residual / balloon payments. Even if you have the cash stockpiled try not to use it for these types of big purchases. Don’t get me wrong it’s great to own them but the number of times I have had a client come back to me within a few months of making a big purchase like this and needing cash (quick) is surprising for me and frustrating for them. Stop and think what it costs to operate your business each month and try to build up that cash amount in reserves (or undrawn facilities, like credit cards). It’s not as easy as you might think but if you can get on top if cash flow life will become easier and simpler.

If I can help you with some of these things please call me or reach out via messages.

Posted in Misc, Uncategorized
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