3 tips for buying your first home this year

Dustin Lindale

No doubt 2023 is set to be another interesting year for first home buyers seeking to get into their first home. Generally experts are predicting that the subdued housing market conditions are likely to continue. Our suggestion for first home buyers is to work on areas that help them get closer to being ready for a home loan pre-approval.

So here are our 3 tips to help you get closer to your goal of owning your first home:

1. Reduce or get rid of your debts

There are many hurdles when it comes to helping first home buyers get themselves in a position where they are ready for a mortgage. However, debt is often one we see stopping first home buyers in their tracks. Luckily, with some focused efforts, this hurdle can be overcome.

The key thing to consider here is that for every $10,000 of debt, your home loan affordability is reduced by around $50,000. This is because any current debt payments - be it monthly credit card payments or personal loan payments - need to be included in your monthly expenses declared to the Bank. These expenses then lower your monthly surplus (income less expenses) which determines your home loan affordability.

For more information about how to reduce or get rid of your debts, take a look at this article covering 6 Tips For Getting On Top Of A Debt Mountain

2. Create a home ownership budget

With the introduction of CCCFA regulations in 2021, it has become important for those seeking bank lending to have a good understanding of their monthly expenses. For first home buyers these changes made things incredibly difficult to obtain a mortgage as the Banks became very cautious about approving mortgages. One main outcome was that borrowers found their bank statements were closely scrutinised to determine what monthly expenses to include in a mortgage application. The result often meant that applications were either declined or approved at much lower amounts.

Luckily in mid-2022, these regulations were amended based on feedback from the Banks to help make the rules more easily interpreted and applied. A key outcome here was that a client's previous 3 months of bank statements were no longer the only source of truth in determining monthly expenses. Banks (and mortgage advisers) could now discuss with clients what expenses were regular and ongoing and what expenses would no longer apply when a client took out a home loan. Examples of this were things like discontinued subscriptions and reduced dining out expenses.

So first home buyers looking to give themselves the best chance of a loan approval should take this into consideration.

Our suggestions here would be to:

- create a homeownership budget using something like Sorted's Budget tool or Pocketsmith's budgeting app.

- setup a system that you can stick to it (automatic payments, monthly review of bank statements).

- print out bank statements and review all current expenses for reductions (think unused subscriptions, dining out and other discretionary spending.)

3. Confirm your home loan affordability

An important step to being ready to apply for a home loan is getting an idea of your current affordability. That way you can work out a plan to get you from where you currently are to a stage where your home loan affordability can help you purchase your first home.