Are you thinking about home ownership? Learn more about planning and preparation...
You're officially a homeowner, what's next? Get to know the essentials of home ownership...
Learn about the financial assistance options available to you...
Are you thinking about home ownership? Learn more about planning and preparation...
You're officially a homeowner, what's next? Get to know the essentials of home ownership...
Learn about the financial assistance options available to you...
Having low amounts of debt and a good credit score are two key steps in getting ready to buy.
Here, we will learn what debt and credit are and how to manage both in the lead up to applying for a home loan.
Financial counsellors offer a free service to assist people in managing their debt. See our Connect section for more information on financial counsellors.
Debt refers to money that is owed by one party - typically an individual or an organisation - to another party.
Debts can take many forms, such as;
When you borrow money or receive goods and services via a loan, you incur debt. You are required to repay that debt according to the agreed-upon terms you have with the creditor or lender (in your contract).
These terms usually include the repayment amount, an interest rate and specified repayment period or loan term.
Failure to repay debt usually results in the borrower being charged further interest payments, other enforcement costs, such as legal action, and damage to their credit history, hindering their ability to borrow again.
Recent changes in financial regulation guidance have meant that lenders are now allowed to overlook student debt, like HECS or HELP loans, in mortgage serviceability calculations for new home loans.
This may positively impact new homebuyers’ ability to receive a loan. However, students are still recommended to consider the long-term financial impacts of taking on student debt to their overall financial situation.
Credit refers to the ability to borrow money or obtain goods and services based on the trust that repayment will be made in the future.
When you have a good credit history, it means you have a positive reputation for repaying debts on time and managing your finances responsibly.
Lenders are more likely to give loans to individuals with good credit history and offer them at more favourable terms, such as with lower interest rates or higher borrowing limits.
When you begin a home loan application, your lender (the bank) will perform a credit check.
Lenders complete credit checks to understand the financial risks involved in providing the loan. Credit checks are mandatory for Lenders, as they must follow strict regulations when lending money.
When doing a credit check, the Lender will assess your credit score (or credit rating). Your credit score is a computer-generated numerical measure of how likely you are to be able to repay a loan based on your credit history.
Your credit score considers personal and financial information and is calculated based on a variety of factors. These factors include the amount of money you have borrowed (your debt), the number of credit applications you have made previously and how often you pay back your debts on time (repayment history).
A Financial Counsellor can help assess your financial situation and assist you in managing your debt and credit score. Many financial counselling services offer free support. Explore our Connect page for a range of available services.
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