As we say an enthusiastic au revoir to 2020, it’s time to think about how to start 2021 off on the right financial foot.
2020 hasn’t been a great year for, well, anyone and our finances have certainly taken a battering. If buying a home is one of your New Year’s priorities, getting your finances into tiptop shape should be high on your list of priorities.
Pay off credit card debt
Saving up for a house deposit and getting into a good financial position is all the more harder to do when you’ve got credit card debt burning a hole in your pocket.
If you’ve got multiple credit card debts, pay off the one with the highest interest rate first, or consider a balance transfer (transferring multiple credit card debts onto one card with a 0% rate for a set period of time). You should also aim to make more than the bare minimum repayments because many credit card lenders set the minimum repayment at 2-3% of the balance, which means you’re really just paying off the interest and barely making a dent in the balance you owe.
If you’ve got some savings already, it may be best to bite the bullet and funnel this money into wiping your credit card debt. Tax refunds are great for this.
Cut back on unnecessary expenses
Having a savings goal as lofty as a house deposit means certain lifestyle sacrifices will need to be made, like forgoing your habit of getting Uber Eats when you can’t be bothered cooking, or buying a new outfit every time you have an event (I say this as I browse homewares I definitely don’t need online…)
Another area where you can save is by taking a look at your regular bills, like your phone and internet, to see if you can hunt down a better deal and save money. Unfortunately, being loyal to a provider doesn’t mean you’ll be rewarded with a good deal. In fact, you’ll find it’s quite the opposite with new customers lured in by big discounts while existing customers pay more. This is often referred to as ‘loyalty tax’.
Increase your savings
Having a bigger deposit saved up (ideally 20%) means that you can potentially avoid having to pay Lenders Mortgage Insurance (LMI) - insurance that protects the lender, not you, just in case you can’t make your mortgage repayments anymore.
If you’ve got a 20% deposit saved, you can avoid having to pay this altogether. Seems like a no-brainer right? To save up as much as you can, put the money you would have spent on things like Uber Eats or online shopping into your savings, consider selling things you no longer need or use, take up a side hustle like completing tasks on Airtasker or driving around for Uber, save your tax refund instead of spending it - the options are endless.
Improve your borrowing power
Your borrowing power is the amount of money you can borrow to buy a home based on your current financial circumstances (like your income and living expenses).
Lots of things can impact your borrowing power, like having Afterpay debt. Yep, all those purchases you’ve put on buy now, pay later could actually be hurting your chances of getting a home loan because it’s a line of credit, just like credit card or personal loan debt.
Other ways to increase your borrowing capacity include reducing your credit card limits, cutting unnecessary expenses, saving more for a deposit, having good credit history, and including additional incomes.
If you’re not sure what your borrowing power is, a borrowing power calculator is a great tool that can help determine how much you can borrow. Keep in mind that it will only give you an estimate, so don’t take it as gospel. For a more specific figure, get in touch with one of our home loan specialists.
Do I qualify