HECS or HELP debt & buying a home
When you’re studying your Student Loan might feel like a million miles away, after all the debt can be referred and you don’t have to start paying it off until you’re earning approx. $51,957 or more. Check this Link to the ATO to confirm your threshold. Even when you start paying it off you may not really notice the 4-8% coming out of your wages to pay it back. It may only be when you start to think about your future, like owning your first property, that your student debt could start to worry you.
Firstly, if you’re beginning to feel the weight of your student debt, you’re not alone, with the average now sitting at $20,303. This can feel like a hefty amount to owe, so should you have paid off your HECS/HELP debt early? This is a difficult question, on the one hand you have a debt that doesn’t accrue any interest, only increasing gradually against inflation, making them relatively inexpensive debts. On the other hand, it’s still a debt that compounds over time, plus from a lenders perspective it lowers your income, thereby decreasing your borrowing capacity. Either way, you’re left facing a tricky situation, but the good news is that you can still secure a home loan. Here are just some ways you can increase your chances:
Talk to an expert
A licensed financial broker, can lay out all your options and tailor a plan to suit all your needs. Be totally honest with your broker about your HECS/ HELP debt and they will be better equipped to get your loan approved and one that you can afford to service. These experts have access to all the different financial products and can help find a mortgage and negotiate better rates, even with your student loan.
Request your credit file
Understanding if you have any credit issues is important, as they give you an understanding of your credit worthiness and if there are any defaults etc. Any problems with your credit could be rectified ahead of your home loan application, improving your overall credit status.
Reduce any other existing debt
Any credit cards or existing car loans etc. will have a knock-on effect to the amount you can borrow. Paying these off or consolidating them will make an enormous difference to your borrowing power.
If you have evidence that you can save money, you will increase your credit status. In the eyes of the lender, this mean you have self-discipline with your money. Have a separate account for this, with a higher interest rate.
Apply once, for the right loan
If you apply for several home loans at once, it will show up on your credit file and could possibly look like you have been rejected several times. The lender won’t know the outcome of all your loan applications, only that you have applied for many. This is a red flag that you need to avoid, or you might end up harming your credit rating.
If you’re making the exciting life-step of becoming a new home owner, we hope you’ve found this blog useful and feel closer to your goals. If you need any more advice or information, don’t hesitate to contact today, we’d love to help.
*This information is not to be relied upon without speaking to your finance broker, tax agent or financial adviser.
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