A mortgage broker has revealed the four financial behaviours that aspiring homeowners should avoid if they want to buy a property.
Finance Emporium director Jess Phillips said lenders such as banks will look out for financial red flags to assess whether a person will be able to repay their debt.
Ms. Phillips has helped dozens of people buy their dream homes and pay off their loans more quickly.
She told the Daily Mail Australia that spending between $500 and $600 a month on things like gambling can reduce a person’s borrowing capacity by up to $80,000.
“If your goal is to buy a home, don’t take out any additional credit and be careful with your money,” Phillips said.
‘Things like car loans have a huge impact on how much you can borrow.’
Stop making multiple cash withdrawals
Ms Phillips urged Australians looking to buy their first home to stop withdrawing money from ATMs several times a month. She said mortgage lenders would treat this behaviour as a regular expense.
Mortgage broker and director of Finance Emporium, Jess Phillips (pictured), has revealed some major red flags that will make lenders think twice before approving home loans.
“They will add it to your monthly expenses, which can dramatically reduce the amount you can borrow,” said Ms Phillips, from the Northern Territory.
Ms Phillips also issued an important warning for those who make multiple cash withdrawals each day.
She said this could raise suspicions that a person has spending impulses to fund things like a gambling addiction or betting on sports matches.
Don’t apply for a car loan
Ms Phillips said borrowing capacity could be reduced by as much as $150,000 if a person shops for a car loan before applying for a mortgage.
“I had a client in WA who can’t buy a house right now because of his car loan until he pays it off,” he said.
Ms Phillips said such significant expenditures can “kill a first-time homebuyer’s dream”.
“You could have gotten the $30,000 car instead of the $60,000 one,” Phillips said.
He also urged people not to take out unsecured loans to finance purchases for specific expenses such as weddings and holidays.
Most lenders use what is known as the debt-to-income (DTI) ratio to calculate whether a customer can afford to repay their mortgage loan.
A DTI value of three is generally considered within a lender’s limit and a value of six or more is considered high risk, according to financial services regulator APRA.
Avoid sending money abroad
Ms. Phillips said she has worked with dozens of clients who regularly send large amounts of money to friends and family abroad.
He said lenders will view these customers unfavorably as this expense could be seen as a debt they are trying to pay off.
“They’ll ask a lot of questions about it, which could basically mean you’ll be turned down for the property you want to buy because you can’t get enough credit,” Phillips said.
Australians send a whopping $20 billion in aid to friends and family overseas every year.
Ms Phillips advised people not to send money abroad at least three months before applying for a home loan or considering making one-off payments.
Ms Phillips said lenders will look unfavourably on customers who send money abroad at regular intervals as this expenditure could be seen as a debt they are trying to repay (file image)
Use your savings wisely
Ms Phillips says people should not use their savings to fund the cost of their everyday expenses.
Mortgage loan lenders will evaluate a person’s income, expenses, and debt to determine the borrower’s ability to repay.
Ms Phillips also urged people to be aware of how they spend their money by carefully reviewing their bank statements.
“People tell me they can’t save for a deposit because they don’t have any extra cash, but then when I see their bank statements, it’s horrible,” Phillips said.
“They think they are spending $2,000 a month, but they are actually spending $4,000 a month.”
Ms Phillips said that although she hates the word “budget”, it is important for people to spend their money wisely, separating their needs from their wants.
“It’s just about understanding where your money is going and putting a plan in place that allows you to know exactly how much you need for your bills, food and rent,” she said.
