Budding buyers should use the stage four lockdown to become purchase ready, experts say. Picture: iStock
Budding homebuyers keen to pounce once Melbourne’s stage four restrictions have been lifted should be using the period to get themselves loan ready, experts say.
That meant determining a buying budget, choosing a lender and loan type, and potentially obtaining pre-approval.
Real Estate Buyers Agents Association president Cate Bakos said those keen to take the property plunge post-lockdown should start on this now, as the major banks were taking as long as 40 days to assess loan applications amid COVID-19.
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“People need to get themselves sorted before they go shopping, and be prepared for anything as long as a two-month process. Assessment is only one part, the other part is setting up documentation,” she said.
Ms Bakos recommended using a mortgage broker, as they could help determine a buyer’s borrowing capacity and use the “broad panel of lenders and policies” they had access to find a suitable loan.
Mario Borg Strategic Finance mortgage specialist Mario Borg said to ascertain their borrowing capacity, a buyer first needed to add up their typical monthly expenses.
This could include rent, ownership costs for other properties, household bills, education and medical fees, insurance, gym memberships, food, personal shopping, and entertainment costs.
“Be honest and start prioritising what you can carry forward when you take on a home loan,” Mr Borg said.
“From that, work out how much disposal income you’d have at the end of a month, and how much debt you can comfortably afford to take on.”
Mortgage specialist Mario Borg says lenders have heightened their scrutiny during COVID-19.
With interest rates at record lows, he said it could be worthwhile “stretching yourself within the realms of affordability” to maximise your borrowing capacity.
A borrower also needed to demonstrate stable employment and an ongoing income stream. Presenting at least a 20 per cent deposit, plus purchasing costs, made you a better loan candidate by taking you “out of LMI (lenders’ mortgage insurance) territory”.
Mr Borg recommended a principal and interest loan over interest only, unless you had a “strategic reason”.
Obtaining the lowest interest rate didn’t necessary mean you were getting the best deal, with some lenders offering “honeymoon rates” that increased after the honeymoon period expired.
“(Also consider) ongoing fees, set-up costs, and the flexibility of the loan, as you might want to be able to make extra payments and redraw them,” he said.
“Professional advice is important to ensure your home loan keeps working for you.”
Mr Borg said borrowers should consider whether to choose a fixed or variable rate, or a major or second-tier bank, on a case-by-case basis.
Fixed gave a borrower certainty and allowed them to make the most of the current low-interest rate environment, while variable provided flexibility.
Second-tier lenders were offering “some sharp deals” and, typically, shorter turnaround times in the COVID-19 environment, Mr Borg said.
Melbourne’s stage four lockdown has created difficult buying conditions, notably banning in-person home inspections. Picture: Ian Currie
He noted the pandemic had further heightened the level of scrutiny lenders applied when assessing applications.
“They’re going through bank statements line by line, so be diligent with what goes through your statement,” he said.
“TAB withdrawals every second day are going to appear as high risk to a lender. Afterpay may limit your borrowing capacity. Get rid of unnecessary credit cards.”
While pre-approval fast tracked the loan process after you had purchased, Mr Borg warned it was “not bulletproof”, as it was subject to your financial position and income remaining unchanged, and hinged on you choosing a property a lender deemed “satisfactory”.
But Ms Bakos said she was typically “quite anxious about working with buyers who don’t have pre-approval”.
“We can’t just assume a lender will be prepared to lend to them,” she said.
“Despite lower interest rates, we’ve got some really tough credit regimes at the moment.”
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