Could a personal loan get you on the path to your first home purchase?

by Greg on November 8, 2013

first home purchase

Household expenses, credit card payments, automotive maintenance: for the budding first-home buyer, managing these sorts of financial responsibilities whilst trying to save for a property deposit can be challenging.

Add to this, the various State Governments’ withdrawal of financial assistance for existing dwellings — also the upswing in asking prices as a result of low interest rates — and the first rung of the property ladder may seem out of reach for some people.

But it need not. There are options for first-home buyers to help get them on the right path to their first home purchase. A focus on reducing existing debt prior to purchasing is a necessary step – and it’s not just to help ensure a successful home loan application. Undertaking the new and unfamiliar financial obligations of home ownership without a firm grip on existing debts is not a wise idea. While you can plan ahead for future costs, such as mortgage and rate payments, sometimes you can’t plan for everything — unforeseen, urgent home repairs, for instance.

If you’re saving for your first home, and finding it hard to reduce your existing debts at the same time, a personal loan might be worth considering. Here are some reasons why:

Debt consolidation

A personal loan enables you to combine multiple debts – such as a car loan, store card and travel expenses – into one manageable loan with fixed repayments, over a set term. This can help you establish a solid credit history – a key factor in a successful home loan application.

Budgeting

Instead of making separate debt repayments at various times of the month, one single monthly repayment at a set time can make budgeting much more straightforward. It can be much easier to plan and budget when you know exactly what your total monthly repayment is, and when you need to pay it.

Potential Savings

A chief benefit of a personal loan is the potential cash savings. Consolidating debt may cut a significant amount of money from your overall interest bill. Think about the interest you currently might be paying on your various loans and debts – wouldn’t it be great to put that towards your deposit instead?

Building Good habits

Not all of us are great with regular debt repayments. What’s ideal about a personal loan is that the payment dates are set, so it can help establish the habit of allocating and paying-off debts at a set time. This is a great routine to get into in preparation for a home loan.

Reducing your existing debt — getting a handle on your finances — is as important as saving the required amount for a deposit and stamp duty. A personal loan may be a worthwhile option, but it’s always a good idea to speak with a qualified financial advisor to help find the best option for you.

Liam Janke is the Senior Manager for Aussie Consumer Finance Products. He has a broad financial services experience having worked across credit card, home loan and personal loan portfolios with Aussie since 2009.  Liam’s experience also extends to deposit and transaction products together with online share trading through roles at Heritage Building Society and E*TRADE Australia.

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