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Buying a home off-plan? Avoid home loan pitfalls

09 May 2016

Buying a new home off-plan is a pretty common occurrence in today’s property market, but it can mean a long wait from the time the buyer’s home loan application is approved to the time when the loan is formally granted and becomes active - and this can pose a real risk for the unwary.

Rademeyer says a chunk out of your savings or a dramatic climb in credit or store card debt during the waiting period can seriously affect your credit score, and could cause your bank to rethink the terms of your home loan - or even withdraw approval altogether if it believes you will no longer be able to afford the repayments.

Shaun Rademeyer, CEO national mortgage originator, BetterLife Home Loans, says the sense of relief and excitement once a home loan has been approved can easily lead to some unwise financial choices, especially among first-time buyers.

“For example, it is natural to want to move into your new home with new curtains, furniture and appliances, but the latest smart fridge might not be the best choice - and you should really think twice before taking on any more debt to finance your purchases.”

He says a chunk out of your savings or a dramatic climb in credit or store card debt during the waiting period can seriously affect your credit score, and could cause your bank to rethink the terms of your home loan - or even withdraw approval altogether if it believes you will no longer be able to afford the repayments. 

“Our advice is that borrowers should, in fact, avoid taking on new credit of any kind at this stage, and especially put off buying anything like a new car or a luxury lounge suite.”

During the waiting period, it’s also better for borrowers if they can avoid or delay changing jobs, Rademeyer says.

“Career changes can also have an effect on a loan approval - even if they are not negative,” he says.

“You may be offered a better job or a position with bigger bonuses, but lenders are generally looking for stability in your earnings and employment, and will need to be notified if you decide to make a change while waiting for your new home to be completed.”

Indeed, he says communication is the key to building a good relationship between borrower and lender.

"Loan approval can come completely undone as a result of reckless spending or sudden changes that affect the home buyer’s financial profile, and this could lead to serious problems with the home builder and damage the buyer’s credit record for many years.

“Therefore the safest course is for the home buyer to change as little as possible between the time a loan is approved and the completion of the new home. Steady employment and spending habits will pay off when the full financial implications of being a homeowner become known.”

And finally, Rademeyer says you shouldn’t be too hasty when packing up your existing home.

“You may well need all those bank statements, tax returns and payslips again when your new home is finished and the time comes to finalise your home loan and book the moving van.”

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