5 Things You Can Do to Strengthen Your Financial Position

When people think about getting ready to buy a home, the first thing that usually comes to mind is saving a deposit.

While your deposit is certainly important, there are other things you can do well before you start house hunting that may help put you in a stronger position when it comes time to apply for a home loan.

In fact, some of the smaller changes to your finances can make a difference to how a lender assesses your application.

Here are five things we recommend considering before you start seriously looking for your next home.

1. Get a finance check before house hunting

Before spending your weekends at home opens, it can be worth getting a clear picture of your current financial position.

A finance check can help you understand how your income, expenses, existing debts and current commitments may affect your ability to borrow.

It can also highlight areas that could potentially be improved before you apply.

For example, you might discover that an old credit card, personal loan or other financial commitment is affecting your borrowing position more than you realised.

Getting this information early means you have time to make changes rather than discovering them when you're ready to make an offer.

2. Know your borrowing power

Knowing how much you may be able to borrow can help you set a realistic property budget from the beginning.

Your borrowing power isn't simply based on your salary. Lenders generally consider a range of factors, including your income, living expenses, existing debts and other financial commitments.

It's also important to remember that your maximum borrowing capacity isn't necessarily the same as the amount you should comfortably spend.

Understanding your numbers early gives you the opportunity to think about what repayments would look like alongside your lifestyle and other financial goals.

3. Reduce your credit card limits

This is one that can catch people by surprise.

You might have a credit card with a $10,000 limit and owe absolutely nothing on it. However, the available credit limit can still be taken into consideration when a lender assesses your financial position.

If you have a credit limit that you don't really need, it may be worth speaking with your broker about whether reducing it could benefit your borrowing position.

For example, if you've gradually increased your credit card limit over the years but rarely use it, you may not need the full amount available to you.

Small changes like this can be worth considering before you apply.

4. Pay down existing debts

Existing debts can have an impact on your borrowing capacity.

Car loans, personal loans and other repayments are financial commitments that need to be accounted for when a lender looks at your ability to service a new home loan.

If you're planning to buy in the near future, consider whether paying down some of your existing debt could improve your overall financial position.

This doesn't necessarily mean you need to clear every debt before buying a home. The right approach will depend on your circumstances, your savings and your overall strategy.

That's why it's worth having the conversation before making large financial decisions.

5. Close credit cards you no longer use

If you have old credit cards sitting around that you haven't used for years, it could be worth reviewing whether you actually need them.

Even if there is no balance owing, an unused credit card still represents available credit.

If you genuinely don't need an account anymore, closing it can simplify your financial position and remove an unnecessary credit facility.

Again, it's worth checking with your broker before making changes, particularly if you're preparing for a home loan application.

Buying a home starts before you find the home

Getting your finances in order isn't always the most exciting part of buying a property, but it can be one of the most valuable. Rather than waiting until you've found your dream home to think about your borrowing position, start the conversation early.

At WestGen Finance, we can help you look at the bigger picture and create a strategy around your home buying goals.

Thinking about buying a home in the next 6 to 12 months?

Book a free 15 minute strategy call with the WestGen Finance team and start getting your finances ready before you start house hunting.