What steps can I take to get approved for a home loan?

[sarahrachel]

I'm 31 and on 81K a year. I've doubled my income over the last 3 year period. I'm not very clued on when it comes to anything financial. I made heaps of mistakes taking out loans and credit cards when I was younger and I'm just starting to get things under control now.
I've had a few defaults, with my last one due to come off my history upcoming August.

My partner and I want to buy our first home within a year. Just seeking some financial advice - anything to get the ball rolling.

Weekly income after tax: $1050

Debts:
Gem Visa - $2700,
Student loan - $17k,
Car - $6.5k (my grandma bought me this and I pay her interest free),
Overdraft - $2k

Outgoings:
Gym - $18 p/w,
Car insurance - $19 p/w,
Dog insurance - $10 p/w,
Car - $50 p/w,
Rent - $175 p/w

Kiwisaver - $30000k,
Savings - $1500

One thing I should note is I have a ute now with my job. I only need to pay for diesel for personal use. My little demio is sitting on my driveway. Not sure what to do with it. 2008 really tidy with 60k on it. Wondering if I should sell it.

Cheers

Edit: Thanks heaps for the input and the hard truths. Absolutely taking it on board.

Just a bit of info:

I did save about $11k this year. I spent $5k on a dental bridge and a few fillings. $3k to go overseas to visit my family (this was non negotiable I had not seen them since I was 21). $1.5k to pay off the remainder of a previous vehicle loan.

Up until 3 years ago I was in and out of study, and low wage jobs. I only had money for bare essentials, so my savings were horrible. I was also battling an ED. Which once I finally went into treatment for, when I came out I was able to focus on a career and mental health which started to make things better for myself financially.

House price: My partners parents are giving some land for us to build on as part of his inheritance. Which is why maybe the 1 year time frame seemed a bit short.

Again thank you all so much, I'm gonna get my little A into G and start pinching every penny.

 

[abramsailor]

@sarahrachel Here’s what I would do, First action is to get rid of the debt, the banks won’t view it favourably when reviewing a mortgage plus the behaviour is bad. Secondly reduce all expense as reasonably possible and cash in the car your not using and save your fucking heart out. Ideally you need about 100k-200k for a deposit in Auckland which would be 10-20% on a 1m home. Also invest in increasing your income.

 

[sarahrachel]

@abramsailor I'm focusing on my credit card atm. Once that is paid, would it be better to pay off a student loan quicker or put money into savings?

 

[chy]

@sarahrachel Pay off the overdraft or the gem visa (if the gem visa is interest free then leave that). If your student loan is interest free I’d focus on saving first.

 

[joe8923]

@sarahrachel Put money into savings, this will allow you to build up a deposit sooner, student loans have 0 interest so there is no incentive to pay off sooner, especially as inflation is chipping away at the loan. The banks do not look down on student loans, they merely look at the repayment amount and subtract that from your income in their calculations

 

[amelia97]

@sarahrachel If you're remaining in the country then ignore the student loan forever. The longer you have it, the more inflation eats it. One day it'll be gone and you'll suddenly get a bump in your take home pay.

(The only time I'd deviate from this general rule is if the loan is almost paid off and the date of the admin fee is coming up, or if it's almost paid off and you're going to apply for a home loan)

 

[youthleader424]

@sarahrachel Clear you credit card and overdraft. Most banks I spoke with didn't care about the Student Loan since it's interest free and a wage deduction. You would also want to save for a couple of months preferably about the amount you would have to pay towards a mortgage.

 

[dbhedden]

@sarahrachel Honestly mate you can’t afford a house and it doesn’t even sound like you’re even close.

You’ll need a 20% deposit, even on a $500k house that’s $100k. Your partner would be contributing the majority of the deposit if you only have 30k saved.

Focus on paying down your debt. Start with the highest interest (probably gem visa) and then build an emergency fund of 3-6months expenses. Then it’s time to start saving for that deposit. I don’t think a year timeframe is feasible.

 

[cesar07]

@dbhedden 65 Upvotes for a post full of complete bullshit. This sub is the worst place to go for advice and it would be better if posters like this were banned.

OP, Jump on First Home Buyers Group on Facebook if you’re really interested in buying a house and you may get advice like this:

• Kainga Ora are doing 5% deposits for joint buyers with household income of under 150k
• Most banks are doing 10% deposit loans for their own customers if you’re above 150k household income
• You will need to wait until August if you want to buy with less than 20% deposit
• You are in a good position to look at a home loan in a year’s time depending on your partner income and location.
• The vehicle loan payments from grandma will have an impact, ideally you want to pay this off first

 

[dbhedden]

@cesar07 Lol, you want me banned for saying its wiser to have a 20% deposit rather than a 10%? You’ll pay extra interest for a low deposit which will mean rates over 8% in a years time.

Even disregarding that, you can’t argue that its bad advice to pay off high interest debt before taking out a mortgage?

You can disagree all you like but there’s no need to be so obtuse.

 

[cesar07]

@dbhedden You said OP needs a 20% deposit, can’t afford a house and isn’t close.

You clearly have no idea about any of this and shouldn’t be offering advice. You should delete your post.

 

[dbhedden]

@cesar07 Yes and your opinion is different to mine, accept it.

There’s certainly no vested interest in the mortgage broker pushing mortgages people can’t afford… business down for you or something?

 

[cesar07]

@dbhedden OP asked about whether they can get approved for a home loan so I am responding in that context.

A loan on, say 400k (as per your original post) would be ~$600/week at 7%. For a couple on over $2000/week net that is affordable with room to spare.

 

[magpie0603]

@cesar07 Thank the lord people like you are on this sub!

The other poster told op to build an 3-6 month emergency fund, then start saving for a house deposit. I mean ffs…

 

[dbhedden]

@magpie0603 That’s standard financial practice, do you really think it’s wise to take out a 400k mortgage and not even have 3 months of expenses saved?

If i’m living in negative land, you’re in candyland

 

[izzygiessen]

@cesar07 Why would you want to pay grandma off first? The debt is interest free. Probably the last person from a financial POV you would want to pay.

 

[resjudicata]

@izzygiessen Ahhh but you see, you are caught up in the idea of getting to $0 debt as fast as possible with as little interest as possible. If you are going to carry some debt into home ownership, then cashflow is more important.

A gem visa with $10k limit is treated as owing that much and costs $300 per month. If you were paying grandma $100 per week, then paying off grandma first would free up more cashflow for servicing a home loan allowing you to take out a bigger loan/increase repayments/have a more comfortable buffer.

 

[cesar07]

@izzygiessen Fair question. You would do it if your goal was to buy a house because the payment would typically be ~$500/month which would reduce your borrowing power by ~80k.

If your goal was to pay as little interest as possible (if you had a bunch of consumer debts say) you would pay them off first. OP only has 1 card with a small limit and paying that off will have less impact.

 

[agathafinch]

@dbhedden You don’t need a 20% deposit necessarily

 

[simancia]

@sarahrachel Here's a step by step plan to get yourself onto the housing ladder:

Step one: Address your debts. Any debt incurring interest is going to eat away at your money rather than your money working for you. This means you need to pay off your credit card and overdraft debts ASAP. The interest from these will be a killer. How about student loan and your car debts? They're zero % interest debts. There's no rush to pay them off when your money could be earning you interest even in a savings account, but preferably term deposit.

Step two: Sort out your life. This is the biggest barrier you have in terms of reaching your savings goals. You've spent your entire life throwing away more money than you earn and getting into debt. There are chronic habits and attitudes that you have towards money which has led you to where you are now.

It's like someone trying to go to the gym for the first time and fix up their diet - most people fail. No different. Therefore, you need to sit down, address the reasons for your spending habits and poor saving attitude and combat this head on.

Why haven't you been able to save in the past? What were these mistakes, and what have you done to make sure you never repeat them? Do you have a plan for saving and reaching your financial goals? You can't just say you'll "put away money". You need to come up with a firm minimum amount of dollars that you will save for this goal and to hold the conviction that you'll never go into this fund on a whimsical decision or for short term pleasure.

This means that you'll need to make sacrifices in what you're currently spending on. Those discretionary purchases will need to be thought through. You need to consider what they bring to your life and whether it's worth those extra dollars. Perhaps that morning coffee you have is the only thing you look forward to each day and that's a non-negotiable. Fine. But that means the weekly brunch every Saturday morning will need to be cut. You need to critical in what you spend your money on so that every purchase is intentional and you know where every dollar is going.

This isn't just for the saving of a deposit, but for when the bank assesses your spending. If they can see a clear pattern of careless discretional spending that is random and inconsistent, they're more likely to reject your home loan. However, if you're intentional with what you spend, there is a clear pattern to show that you're sticking to a budget every fortnight/month with your spending, and your savings are consistent, then you'll be able to present yourself as a stable and dependable client.

Step three: Save up for a deposit. You'll need to see how much you'll be able to borrow, and save up a 20% deposit for the house that you want. You won't be able to do this in a year. Given the fact you have debts that need to be paid off and your saving pattern, it will likely take 2-3 years.

Remember, the top figure that the bank will lend you should not be your goal for how much your home should cost. You should borrow considerably less than that. People are overleveraged and losing equity. You do not want to put yourself in their shoes.

You are fighting an uphill battle. But the great thing is, any change towards favourable circumstances is difficult. If it was easy, everyone would be doing it. Be prepared to embark on this journey to hopefully place yourselves in a financially stable position where you can reliably provide for your household and step yourself up for the best future possible.