Getting a mortgage in the coming couple months

ingster on 28/03/2020 - 11:43

Long story short myself and my partner are wanting to buy a house in the next 3-6 months in the Adelaide area. We have roughly a 20% deposit and both have steady incomes that pay fairly well (combined income around 160 - 170k), we both have credit cards totaling about 25k limits and I owe just under 10k on mine.

I realise this is very broad information but we are worried that lenders may be stricter in their lending criteria due to the current situation then they normally would be? Our original plan was to start looking/applying after June/July but circumstances have made us think of moving forward sooner, as such our spending hasn't been as "responsible" as I would like to present to a bank/lender (had a 2 week holiday in feb etc).

Thanks!

Financial

Comments

  • brendanm on 28/03/2020 - 11:45
    +14

    Get rid of the credit cards

    • kipps on 28/03/2020 - 12:18
      +12

      Or at the very least reduce the limits. The banks will assume they are maxed out when testing your serviceability.

      • Lastchancetosee on 29/03/2020 - 09:34

        This. The limit, not the amount owing is the consideration when applying for a housing loan. Might be worth getting rid of them all together, or reducing them to a low limit, like $2k,and doing a debt consolidation through a personal loan to pay them off quickly at lower interest. Weekly payments can knock months off the loan.

  • DashCam AKA Rolts on 28/03/2020 - 12:03
    +3

    Speak to a broker recommended by someone you trust. Brokers are across what the banks are doing currently, as most are in regular contact with the lending departments. A good broker will also be able to advise re: what to do with you credit card balances/limits etc.

    • Nugs on 28/03/2020 - 12:29

      Yep. Brokers are useful.
      We have used the following twice each;
      Loan Arranger (CBD) Derek Mason (last used ten years ago though)
      Smart line Blackwood Cathy Anderson (last used a year ago)
      Costs nothing to have a chat and see what they say even if you don't end up using them.

  • [Deactivated] on 28/03/2020 - 12:35
    +9

    Why do you have money owing on a credit card? Pay it off each month. You would be much better shifting your deposit money to pay off your credit car if you can't afford to pay it cash.

  • [Deactivated] on 28/03/2020 - 13:46
    +6

    we both have credit cards totaling about 25k limits and I owe just under 10k on mine

    So yours is maxed out? How come?

    My advice would be to pay it off and then cancel both CCs.

  • Brodo Faggins on 28/03/2020 - 13:58

    Rent bro and build an online biz instead

  • saintpotter on 28/03/2020 - 14:13

    dont forget stamp duty!

  • modsec802 on 28/03/2020 - 14:19
    +1

    How stable is your job really? I though mine was but just had a 20% pay cut and move to part time in first time of working in 20+ years

    • dcep on 28/03/2020 - 14:33

      what industry

      • modsec802 on 28/03/2020 - 15:02

        IT software engineering

        • [Deactivated] on 29/03/2020 - 23:19

          Your job can be outsource to the Philippines or India In a blink of an eye.

  • dcep on 28/03/2020 - 14:36
    +1

    don't rush it

    everything unpredictable can happen in this market

    the good thing is if you wait it out, your current 20% of target market might become 50% deposit when property popped, so no problem even if lending criteria tightens

    • brendanm on 28/03/2020 - 14:43

      This is good advice, worth waiting at least a month or 2 and seeing what happens, if anything, to property prices.

      • TheBilly on 28/03/2020 - 18:03

        However OP should start now. Even if everything went to plan it will take them 3-4 months to buy something. Factor in things like, waiting for finance approval, shopping around going to open homes, negotiating, having a few bump steers and it easily take 6 months to buy a house. That's if you are trying.

  • cuckchump on 28/03/2020 - 14:49

    economy is unpredictable atm with the mass layoffs and u still dunno whats going to happen with stage3+4 etc how it will affect your job or the industry you in….

    i dunno what happens if someone like you who has savings and all of a sudden get laid off, can u access centrelink welfare or they want you to use up all your savings till u can apply, then there goes ur 10% deposit u saved….

  • ingster on 28/03/2020 - 14:58

    Thanks for all your comments certainly food for thought.

    I work in IT in the transport industry, fairly safe even now.

    My CC isn't maxed out I just have a higher limit than my partner.

    Sounds like our next step is to find a broker.

    Thanks again.

    • Ughhh on 28/03/2020 - 16:56
      +2

      My CC isn't maxed out I just have a higher limit than my partner.

      Even if your monthly balance to pay is $1, your borrowing power will be based on you using/owing the full $25k.

  • SBOB on 28/03/2020 - 15:40
    +3

    steady incomes that pay fairly well (combined income around 160 - 170k)

    we both have credit cards totaling about 25k limits and I owe just under 10k on mine.

    This does not compute.

    After tax , that's over 10k a month.

    What are you spending money on, that you have a 10k credit card bill?

    And why would you prioritise putting money in a savings account for a deposit (earning effectively 0%), while carrying a 10k credit card debt that's going to be double digit interest.

    • [Deactivated] on 28/03/2020 - 16:39

      Agree with this. Pay off the credit card debt as your first priority then if you can, close the card account as that will certainly help with the lending process

    • [Deactivated] on 29/03/2020 - 23:20

      Keeping up with the jones.

  • TheBilly on 28/03/2020 - 18:06

    If you have a CC the banks account that as a full debt even if you owe zero. Flick the cards. Keep one with a small limit of 5k in case you need it. Talk to a good broker, they know which banks go through your bank statement versus which ones are loose. I recently applied and they didn't question anything on my statement despite multiple weekends away.

  • onetwothreefour on 28/03/2020 - 20:33

    Agree with others wait to see what happens, nobody knows what the next 6 months hold. Also agree to pay off your credit card straight away, on your income there is no need to go so far into debt.

  • Bob Svargis on 29/03/2020 - 08:09

    Like others have said, kill the credit card(s). Banks will assume you have a full balance owing because it’s easy money. Even a mortgage broker will tell you that.

    With no kids, both working etc, you should find it easy to get rid of your card. Or at least drop your limit to say $1000 or so.

    Sorry for prying, but why would 2 full timers with no mortgage need such high credit limits? What could you possibly spend the money on that you couldn’t save for using your own money?

    • hoju83 on 29/03/2020 - 08:40
      +1

      To be fair when I was young and had no idea how credit card limits worked or how it would affect potential borrowing power, I assumed that having a higher credit limit was a good thing because I thought the only reason the bank would keep offering to increase my credit limit was because I was good at paying off my balance regularly.

      Surely that would look good on my credit report because it shows that I'm a responsible person right??

      Now that I know better, it sounds stupid in hindsight but it highlights the importance of teaching kids financial life skills/knowledge before they're old enough to get their own credit cards and start loading themselves with debt.

    • Valjew on 29/03/2020 - 22:10

      "Sorry for prying, but why would 2 full timers with no mortgage need such high credit limits? What could you possibly spend the money on that you couldn’t save for using your own money?"

      My wife and I are on more than that and I have far more than that in credit limits. Why? Because why pay cash when I can use a CC and get points/cash back plus extended warranties, purchase protection, etc. Balance is paid in full each month, so it costs me nothing.

      So my question is, with the obvious exception of wanting to reduce/axe all of your CCs for the purpose of getting a mortgage, why WOULDN'T you want to have such high limits so that you could buy whatever high-value items (i.e., car) you wanted to that you would/could otherwise buy with cash anyway?

  • TilacVIP on 29/03/2020 - 09:00
    +1

    Surprised if the banks would lend on a 20% deposit in the current situation. They would be exposing themselves to high risk, especially if the property market falls by more than 20%, and I believe it will in the coming weeks. On top of that, the rate of unemployment rising, and all the unknowns.

    On top of that, how sure are you, that you and your partner's jobs are safe 100% for the next 10 years.

  • saltypete on 29/03/2020 - 10:58
    +1

    By the time you are in a position to actually look at houses to buy, I.e. open inspections etc the banks will be more than happy to lend as it is how they make money. With a deposit saved and as long as you feel your job will hold you will be able to come into the market at a fairly low point.
    Well done.

  • HeWhoKnows on 29/03/2020 - 22:29
    +2

    This is a time of great uncertainty
    Your job is uncertain
    Your life and health is uncertain
    Your financial committments are uncertain
    Best to wait till its over

  • [Deactivated] on 29/03/2020 - 23:02

    How secure is your job. With the current market worse case scenario of paying the place on one income and possibly working only part time or casual can you afford your lifestyle and 30 year mortgage?

  • [Deactivated] on 29/03/2020 - 23:06

    In a recession a drop in property price of 20%-30% is likely. In a depression a drop of 50% or more is possible.

    • Hybroid on 29/03/2020 - 23:07

      I guess there's a few people eager to see these price drops and purchase property at cheaper prices and interest rates. Definitely tempting.

      • [Deactivated] on 29/03/2020 - 23:15

        Look at the property prices in Macquarie park and north Ryde right now. The asking price and the actual sold price is about 35% less.

        • Hybroid on 29/03/2020 - 23:17

          That's good for buyers. More focused on places like this: https://www.domain.com.au/41-portobello-drive-mermaid-waters…

          Here's hoping those drop significantly too…

          • [Deactivated] on 29/03/2020 - 23:30

            @Hybroid: There will be a crap load of distress selling if the economy takes a big nose dive in the next 2 quarters.

            First to go will be all their high end euro trash SUV, take their kids out of 70k per year private schools. Stop paying the mistress.

            If people can’t pay rent, the investment property owner can’t pay the banks and their lifestyle takes a big hit.

  • Lado on 30/03/2020 - 00:26
    -1

    "In a recession a drop in property price of 20%-30% is likely. In a depression a drop of 50% or more is possible".

    In the normal economy yes. In the economy having household debt to income ratio more than 200% (2018 year data, couldn't find current numbers, I think over 250% as per previous movement) I would say 60-70% of drop is also achievable

    https://www.abc.net.au/news/2018-01-18/household-debt-extrem…

  • Lado on 30/03/2020 - 09:07

    The situation is changing quickly - 70-80% probably?

    https://www.theguardian.com/world/2020/mar/29/australian-aut…

    • [Deactivated] on 30/03/2020 - 13:18

      100% agree with you there. Plus in Australia all mortgages is a full recourse debt to the bank. You can't just walk away from the debt.

  • R1ngSt1nger on 30/03/2020 - 14:03
    +1

    Ingster - some advice from someone who was recently approved for a mortgage.

    Our combined income is $165k (so similar to yours), at the time we had a $15k CC limit. We exclusively use the CC to pay for everything, and then just pay the closing balance each month (bank's worst customer).

    Advice from our broker was as follows, (which we followed and were approved):

    • Drop CC limit down to $6k (banks assume the CC is maxed out and reduces borrowing power)
    • Close any Zippay / Afterpay / OpenPay accounts down (banks don't like them if they see regular repayments being made to Afterpay for example)
    • Reduce your day-to-day spending as much as possible for the three months before applying for a mortgage. The bank will go over your last three months of bank statements with a fine-toothed comb.
      • Reduce any restaurant/takeaway dinners
      • Cook more at home, banks like seeing Safeway/Coles/ALDI expenses on your statements, not UberEats/Menulog
        The above shouldn't be hard to do, especially with most things shut down now.
    • Any cash withdrawals you make, be prepared to be asked what it was for from the bank and be able to justify it.

    Good luck.

    EDIT: This is all post-Royal Commission advice. It was much easier borrowing money 18 months ago.

    • ingster on 30/03/2020 - 14:10
      +1

      Thanks! Very helpful advice.

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