I’ve been asked to give some expert tips on how mums can start again buying property after a divorce or a separation or other major event, when they’re starting out alone and want to keep the property they are in or buy something to stat your new life in.
What a whirlwind time it is going through so much change, you don’t need the extra stress of dealing with a bank, so let us help you with our top tips for starting out again.
I see this as two main issues –
Being able to borrow enough to buy a suitable property
And making sure it’s affordable
1 Define your budget. Know exactly what your expenses are and work out whats affordable for you moving forward. We’re not talking budget in a painful sense – we’re not talking cut to the bone – but whats realistic, whats negotiable and whats a pure unavoidable cost of living. It’s just about understanding.
If we think about this, you could be the frugal type who stays in with a movie or you could be the extravagant type who loves to buy fancy shoes – not pointing any fingers here, it’s all up to you and it’s about understanding.
The flip side of this is income, whats actually coming into the house. Unfortunatley I don’t recommend you necessarily rely on maintenance payments because the banks won’t unless you have a clear 6 month history of receiving them each and every time.
By this stage you know what resources are available to you in terms of assistance – family tax benefits etc, so I won’t go over this, but think about talking with a good financial planner about budgeting, super and insurances, affordable insurances! It’s a sad point to note that many women are well behind our male counterparts when it comes to superannuation and this might be a time to address this. I can recommend a good female financial planner to help you with this.
2 Now that we know what it costs us to live and what we can afford to commit to repayments its time to bring in the broker.
Its surprising to know that you with your income can borrow substantially different amounts with different lenders. This could mean the difference between being able to keep the home you’re in or having to downgrade.
It comes down to a set of rules the lenders have behind the scenes about building buffers to allow for interest rate increases and differences in what they expect your living expenses to be. Some lenders also take allowance for family assistance income and maintenance where others do not. There are so many different sets of rules at play here you have almost no chance of walking in off the street to just the right bank for your personal set of circumstances, but we can get you there.
We have to take into consideration all of your expenses and liabilities including the limits on your credit cards – and this can also be where the difference comes in. If you use your credit card as a tool (and they are an excellent tool) and pay it off completely every month then it’s less of a commitment for you than it is to someone who is paying off a debt, so it’s reasonable to consider that a bigger mortgage might be more affordable for you, if thats the way you want to go.
When we are thinking about meeting the lenders “affordability” criteria:
- If possible pay off or get rid of as many other liabilities as you possibly can, for example a $5000 credit card can reduce what the banks think you can afford to borrow by $20,000 – if you don’t need it get rid of it
- If you do need it, reduce the limit to as little as possible
- Don’t stop making payments on existing loans – a bad credit history is not going to do you any favours, if your name is on it – pay it – work the rest out later.
- If there’s already a credit issue get and keep as much documentary evidence as you can that it was not your responsibility to pay it. This still may not help you but it certainly won’t harm you to have the paper trail just in case.
- Bring your income up as much as you can. Some banks will include your overtime and other income and others won’t, but to have a chance of using it you need a history to show you do actually earn it.
Comparing homeloans and mortgages from a variety of lenders allows us to stretch your borrowing capacity out with the right lender to do the job.
3 Keeping the repayments as affordable as possible. With this expert knowledge in hand and your budget in mind we can then look at your options with that lender, do you need a plain and simple loan or do you want all of the features? Do you want some protection from rate rises? Whats important to you? What changes are you expecting to income and expenses as the kids grow and how can we factor this in?
4 Sometimes it’s the cost of starting again that looks prohibitive, especially if legal fees and the like have eaten up your reserve. Maybe you don’t have as much deposit as you would like. There are options around this too. Someone with good history and a small deposit can look at borrowing up to 95% of the property purchase price. If you have family who can help you with a guarantee like a “family pledge” we can look at this option too.
5 Finally, if all the cards are on the table and you consider all of your options you might just decide you want to rent where you want to live and buy an investment property somewhere else. This is a growing trend and there’s some sense behind it where you can more economically rent a property than buy one – but you want to put your toe in the market anyway. Don’t let anyone tell you this isn’t a smart move, it just might be the best thing for you. After all is said and done you want to be able to sleep comfortably at night & not put yourself under any more stress than you need to.
Your broker will put all of your options on the table and help you navigate through the ones that suit you. It will be a major relief to have someone on your side and just imagine how good it’s going to feel when you’re in your very own home.