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Before you even think about researching your next property deal, you need to have all of your finance 'ducks in a row'.
Blogger: Helen Collier-Kogtevs, Real Wealth Australia
It pays to get your funding organised well before you begin ‘shopping’, or you might end up sorely disappointed when you miss out on a prime property investment…simply because you miscalculated your borrowing capacity.
To give yourself the best chance of a smooth and hassle-free finance journey, I recommend you do the following five things:
• Know your budget. It’s crucial that you know what your borrowing power is before you begin shopping for property. You also need to understand that your borrowing power changes every time interest rates move up or down, so if rates do change, ask your broker to recalculate it.
• Have your deposit ready. Before making an offer or going to auction on a property, be sure that you have ample funds on hand to use as the deposit.
• Stress test the mortgage. When you’re calculating the repayments you can afford, use a higher interest rate than the one your bank gives you; I always recommend two per cent above the current standard variable rate. This is basically a “stress test” on the mortgage and gives you peace of mind that you can still afford the loan repayments if rates go up.
• Triple check your lending policies. Your mortgage broker will advise you of the best lender to suit your needs, but remember that lending policies change frequently. Some lenders have high-risk attitudes towards certain property types such as those in mining towns, regional locations, high density complexes and studios smaller than 50 square metres. If your potential investment falls into one of these categories, run it past your broker so they can secure the best finance fit.
• Create a solid financial strategy. When you’re structuring your finances on your new investment, make sure they complement your existing budget. For instance, you’ll want to pay off your owner-occupied mortgage or credit card debts faster than your investment loan, so make sure this is reflected in your financial strategy.
I hope this helps you in preparing to secure your next investment property - and with less stress.