Why mortgages and property purchases don't have to be stressful

By Phil McCarroll
When it comes to stressful occasions in life, buying a property is likely to be near the top of the list.

Whether it’s a house or apartment, home or investment property, people will be more than likely entering a situation where they are borrowing hundreds of thousands of dollars and committing to paying that off over a significant period of time.

But while making a decision that is likely to affect your life financially and in number of other ways for years to come is always going to be somewhat of a nerve-wracking experience, Jane Slack-Smith, director of Investors Choice Mortgages, said there are some steps people should take to make the process a little easier.

Have an idea of what you want:  While those looking to buy a property, especially those on the hunt for their first home, might want jump straight into finding the ideal purchase, Slack-Smith recommends people take some small steps to begin with.

“The first thing I would suggest to people is to think about what you want to buy and where you want to buy,” she said.

“For a home owner that might mean house that is no more than a 40-minute drive from their work place and is near schools and other entertainment options.

“For an investor that might mean a property no more than a 10-minute walk from a train station or public transport and is an area with good capital growth prospects. Don’t be too specific at the beginning, but just have a few key points that you’re looking for.”

Find out what is and isn’t possible: After having their first look at what available properties fit their list of criteria, Slack-Smith then recommends people take the first major step in making a purchase and find out what they can afford.

“The next thing I would suggest people do is find a broker and sit down and work out what their borrowing capacity is,” she said.

“After you’ve done that is when you can really start digging down deeper into what’s available and try to find the specific property that you want to buy.

“Nobody wants to go through the process where you find a property that is your perfect choice and then have the feeling of disappointment when it turns out that you don’t have the borrowing capacity to afford it.”

Be wary of the pre-approval period: While getting your affairs in order and ensuring you’re ready to buy your dream property may seem like a good idea, Slack-Smith says getting pre-approval for a mortgage too early in the game can come with unintended and serious consequences down the track.

“Pre-approval periods are usually three months and that seems like a long time, but a lot of people let that time run out and then it comes to the last couple of weeks and they’re running around trying to get everything done,” she said.

“The process of buying a house could take six weeks or it could take two months, so you want to make sure you’re leaving yourself a lot of time.

“The other thing with pre-approval is that it can hurt your credit file, every time you have pre-approval and it expires without you taking out a loan it counts as a hit on your credit file. I know of one person who found a house they wanted to buy and was more than capable of servicing the debt at an 80% loan to value ratio, yet was knocked back because she had so many hits from expired pre-approval periods.”

Get your affairs in order: While too many pre-approvals can harm your credit file, they aren’t the only thing that can make securing a mortgage more difficult than it needs to be and Slack-Smith recommends people have a good look over their financial situation before they start the mortgage application process.

“With things like the APRA changes recently, banks have become a lot stricter in how they assess applications and it’s even more important to keep your credit file clean,” she said.

“Something like overdue credit card payments can derail an application, which can be really heartbreaking. Try to keep on top of your payments for at least three months before you start applying.

“If you have been late with payments in the past, set up a direct debit for them and really try and show the bank that you aren’t a risk to them.

Income streams besides somebody’s primary job, as well as the “emergency only” credit card can also come round to haunt people.

“The best thing to do is to talk to your broker and let them gauge if it’s important. If somebody has an eBay shop that generates $100 a month, then the bank is going to want to see where that comes from.

“A lot of people also have a credit card that hardly use and don’t think it’s important, but not declaring that is one of the most common mistakes people make.”

Find a good broker: Borrowers should look further than interest rates when finding a mortgage and according to Slack-Smith the right broker will help them with that.

“You want a broker that you’re comfortable with, but you also want one that understands what you’re trying to achieve,” she said.

“If all your broker is talking about is the lowest interest rates and bank specials, then you should probably consider if they’re going to put you in the right situation.

“You need to think about your goals. Everybody who buys property has different ones and you want your finances structured so you have the flexibility you need to achieve those in the future. You don’t want to get five years down the track and find out you can’t refinance or draw on your equity because you chose the wrong loan to begin with.

“At the moment 70% of home loans in Australia are for owner-occupiers, and while most brokers will be able to work with investors, I would recommend investors try and find one who has investment experience themselves.

“They’re the ones that will have the best understanding of the cost and pressures that come with investing in property.”