In recent times it has become increasingly difficult to obtain a home loan approval. This is mainly caused by an increase in the number of borrowings at high Loan to Value Ratios (LVR’s) and an increase in house price – particularly true for the Sydney and Melbourne markets. House affordability has thus consequently become the biggest concern for most home owners, especially for younger buyers.
When buying a property as an investment or your first home, having the right finance is equally important as buying the right house. When buying a house, people treat the mortgage as a loan that is a source to acquire the property, which sits on the side – with a borrower having to pay it off over 30 years.
For most Australians, a home loan is the biggest asset covering a large debt that borrower’s need to pay off. Most of us have a fixed salary that we get every year, as much as we would like to double our income, we are not able to. In saying this, it is important to understand good debt and bad debt – given the context of this situation, a usual home mortgage to be paid off 30 years would mean a huge opportunity cost in other investments.
In my view, any debt that is backed by a safe and secured asset such as a home should be leveraged to its maximum. An asset backed debt gives the most confidence to the lender. What I tell my clients is the most important factor in your property journey is how your loan is structured based on your current financial situation and future real estate goals. This requires planning and strategy that is specific to the borrower. You may love a property, have the deposit and funds to make the purchase, but that would mean nothing if your bank does not get the confidence to lend you that money.