Building Your First Home VS Gambling
Since the introduction of the federal government HomeBuilder scheme late 2020 to stimulate the Australian economy following COVID-19, consumers have been rushing to take advantage of using extra funding to build their first home.
HomeBuilder was established to encourage consumers that were ready to start their home ownership process (with established savings, deposits and conversations already being had with their broker/lender and builder), but had chosen to sit on the fence due to the uncertain nature and what their own personal circumstances would look like following the fallout of COVID. However, many other home buyers wanted to take advantage of the extra $25,000 towards their home buying journey, some of who were nearly there, others who hadn’t even begun their journey.
For those that hadn’t begun their journey who were still to develop savings, who were still to select a builder and work with a broker or lender, have no doubt found the process to be one that is frantic not only for themselves, but for many others with the demand of every other man-and-his-dog also wanting to take advantage of the scheme. This meant that demand on lending had increased (and time to see a broker/lender increased), getting to meet the right builder and building wait times had increased, but the limited timeline of HomeBuilder enticed people to act immediately… even if they weren’t ready.
Following the rollout of HomeBuilder and the sheer demand for people wanting to take advantage of extra government funding on offer, we have experienced so much pain from people who had spoken with builders, put down deposits on land and build packages ranging from $2,000 to $5,000, only to find out that they had all their ducks in a row – except for finance (the big one).
The problem with this is that to be able to become finance approved by a lender you need to be able to clearly demonstrate your ability to service your loan. You need to be able to develop true savings, and consistent living expenses on an ongoing basis week on week over a period of 3-6 months typically. If you cannot clearly demonstrate this behaviour in your consumer spending, on your bank statements and show the lender that you are an ideal client for them to loan money to, then there is a high probability that your application for finance will not be approved, and your deposit/s will be lost.
But if it takes 3-6 months of clear and consistent savings, and you only have 2 months to land settlement, a broker/lender needing you to demonstrate your proven household budget with savings and all of this occurring at potential high levels of stress/work/kids/family/partner etc, what do you do?
If you walk away, you lose your deposit. If you cannot demonstrate your cashflow clearly or provide a budget that makes sense to your home ownership goals, your broker cannot submit your application of finance, hence no decline of finance letter and no refund of “subject to finance” contract clauses.
Going into HomeBuilder or any home ownership journey without knowing your numbers and having a plan that makes sense to you is the same as going to the casino and putting $2,000-$5,000 all on black. It is a massive gamble!
The way we see home ownership is simple, you can either have the pain of discipline today or the pain of regret tomorrow. Knowing your numbers and having a cashflow framework in place that supports your long and short-term financial goals is absolutely essential before you ever consider what type of home you would love to buy.
Over the last few months since November 2020 we have sadly witnessed so many people make serious financial decisions out of pure emotion, rather than looking at their numbers and in a true Australian way thinking that “she’ll-be-right,” and by doing this have lost their deposits, are stuck renting and are back at square one.
You need to flip YOUR Home buying script:
1 – Know your numbers first by developing a budget that makes sense to you.
2 – Seek a broker/lender to know your borrowing capacity and savings needed.
3 – Seek a builder, then discuss your options in line with your finance and budget requirements.
Don’t be a statistic! Get in touch and book a discovery call with us today so you can become “borrower ready,” effectively and efficiently with positive money habits – for life!