Buying a home is one of the biggest financial commitments you will make and it is important to review your financial position as a whole, before making this purchase. Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa says that taking a step back to review your financial situation will help you measure your progress towards attaining your goals and make the necessary changes based on this.
Goslett states, “The majority of the population is reliant on banks to purchase a home, and it is no secret that financial institutions have stringent lending criteria when it comes to bond approval. Prospective buyers have to keep their financial affairs in order and show the required affordability levels before they can be approved for finance. The same applies to consumers who are already homeowners and might require additional finances to undertake renovation projects or upgrades to their property.”
How to review your finances
- Check your foundation - compare your financial resources with your goals and make sure that your goals are still realistic when compared to your resources. For instance, a spouse could have lost their job and your resources are down to one salary – this would mean that your home buying timeline is extended.
- Re-evaluate your priorities - perhaps you got married or had children. A shift in priorities will change your home buying goals, for example if you had another child and need a bigger home, then perhaps a deposit for a home loan shifts closer to the top of the priorities list. “A growing family who is living in a home that no longer meets their needs will want to make a change sooner rather than later. This would mean that more money would need to be set aside for the 10% -20% deposit and other costs associated with a property transaction. For time-sensitive goals, a professional financial planner would be a valuable asset who can provide strategies to meet the objective,” says Goslett.
- Take a look at your life events over the past year, and how these effect your goals. Major life events often add extra time onto a financial goal, for instance if you got married this could impact your tax status and possibly your home buying goals.
Benefits of a financial review
“Reviewing finances and having everything in order will make it easier for consumers to submit their annual tax return. It will also provide the consumer with valuable information about their spending habits. A financial review will assist consumers to determine whether they are getting value for money on expenses such as insurance, flexible spending accounts, cell phone plans and even investment fees,” says Goslett.
Your strategy for success
Monitor and benchmark your financial plan and investments – this is the best way to stay motivated and on top of your financial situation, in order to achieve your homeownership goals.
A major consideration for banks when determining the home loan amount they are willing to grant is the applicant’s amount of disposable income. Goslett advises that getting rid of debt, or at least reducing it, plays a vital role in any financial plan. Even a small reduction every month is better than nothing and will stand you in good stead to eventually increase your disposable income. Goslett also suggests having an emergency fund, which can be done by automatically transferring an amount into your savings every month. This way, should unexpected costs arise, you will have extra funds to cover it and you won’t end up going into debt.
In other words, the sooner you assesses your financial position and make the required changes to meet your goals, the better. Putting it off will just mean that it will take longer to achieve. “Aspiring homeowners need to be aware of how they spend their money as well as what changes need to be made to reach their goal. They will need to review the changes that been made and anticipate further changes that may occur in the future. With the correct planning, nothing is impossible,” Goslett concludes.