The Financial Benefits of Building Your First Home with a Partner


April 17, 2024

Building your first home with a partner is an exciting step towards personal stability and investment. It’s also a strategic financial decision.

For many Aussie couples, joining forces to enter the property market opens up new possibilities. This includes boosting their collective borrowing power. This increased financial leverage comes from merging two incomes, sharing the cost of living, and presenting a combined financial profile to lenders.

Of course, navigating the landscape of property ownership as a first-home buyer can be complex. However, by pooling resources with a partner, you can tap into the benefits of dual income. This often leads to a higher pre-approved loan amount from lenders. Lenders see joint applicants as a lower risk, thanks to the shared responsibility for the loan. Moreover, understanding the ins and outs of the home loan process can make a significant difference. Being well-prepared and informed before heading to a lender is crucial, and Perth-based builders like WOW Homes can provide an insightful guide tailored to first-home buyers.

Building a home with a partner is not just about sharing the dream. It’s also about sharing the planning and dedication required. It means looking at your financial habits, assessing spending, and setting shared savings goals. This synergy can help present a stronger case to lenders, demonstrating reliability and a committed approach to handling joint financial responsibilities. Whether it’s about maximising the amount you can borrow or simply laying down a solid foundation for your shared future, entering the property market together could be your smartest move yet.

Assessing Your Joint Financial Health

Before embarking on the journey of building your first home together, it’s crucial to take a comprehensive look at your combined financial standing. Examining how your incomes, debts, and expenditures interplay will set the stage for understanding your borrowing capacity.

Understanding Your Combined Income

Your combined income is the bedrock of your borrowing power. When assessing this, remember that lenders aren’t just interested in the total figure but the stability and reliability of that income. 

They will look closely at both partners’ salaries and any additional earnings to determine your capacity to service a loan. It’s advantageous for you to compile all income sources, from dependents’ contributions (if any) to assets providing rental income, and other genuine streams. 

Recognising every facet of your collective salary and assets enables a lender to gauge your financial situation more favourably.

Managing Debt and Expenses

The way you manage your debt and expenses is a reflection of your financial health. Lenders will consider the credit card debt, personal loans, and car loans you both carry. Your credit score plays a part here, as it summarises your history with credit and debt repayment. Minimising outstanding debts, particularly high-interest credit card balances with their associated credit limits, and consolidating your debts can polish your credit profile.

Keep a keen eye on your regular outgoings, too—bills, utilities, subscriptions, and other commitments. These paint a picture of your lifestyle and discretionary spending. Reducing expenses, where possible, without compromising on the necessities, can free up additional funds for savings. Lenders call this genuine savings, and it ultimately strengthens your borrowing capacity. A meticulous examination of your joint financial situation will be the compass guiding you towards successful homeownership.

Happy Couple

Maximising Borrowing Power as a Couple

When building your first home together, understanding how to maximise your joint borrowing power can lead to a more favourable home loan. Strategically increasing income while managing debts are key factors in this process.

Increasing Income and Reducing Liabilities

To boost your borrowing capacity, your focus should be on amplifying your income and minimising your liabilities. Lenders assess your financial health based on the money coming in versus your outstanding debts. So, consider taking on a stable job or starting a side hustle. Ensure that any extra income sources are documented since lenders require proof of continuous income. At the same time, paying off unsecured debts like credit cards will present a healthier financial picture to your lender.

Reducing your monthly obligations, such as minimising rent expenses, can also be beneficial. The less you spend each month, the more you can potentially direct towards a mortgage, which improves the view a lender has of your borrowing power. By negotiating with your existing creditors or consolidating debts, you could lower your monthly payments and therefore strengthen your loan application.

Balancing the Loan-to-Value Ratio

The loan-to-value ratio (LVR) is a critical measurement lenders use when assessing your home loan. It compares the amount of the loan you’re asking for with the value of the property you want to purchase. Aim to save for a larger deposit with your partner, as this will decrease the LVR and signifies less risk for the lender. A lower LVR often means a better interest rate and may eliminate the need for Lenders Mortgage Insurance (LMI), which can add to the cost of your loan.

Having a guarantor can further enhance your borrowing power. A guarantor, usually a family member, offers additional security by agreeing to be responsible for the loan if you default. This function essentially decreases the perceived risk for the lender, possibly allowing you to borrow more or receive a loan with better terms. Make sure to discuss this option thoroughly with all parties involved due to its serious financial implications.

Navigating the Home Loan Process Together

Navigating the home loan process with a partner can offer significant advantages, enabling you to pool financial resources and potentially access larger loans with more favourable conditions. With careful planning and professional guidance, embarking on this journey can be a strategic decision for long-term investment.

The Role of Mortgage Brokers

A mortgage broker acts as an intermediary between you and the lenders. Engaging a broker can simplify the process, as they have the expertise to compare different home loan products and guide you through the complexities of loan terms and interest rates. Especially when purchasing your first home, brokers can clarify how different loans impact your borrowing capacity, including how the loan-to-value ratio affects your required deposit.

Understanding Loan Terms and Conditions

Grasping the loan terms and conditions is crucial. The fine print contains critical information about the loan’s interest rate, repayment schedule, and any penalties for early repayment. Thoroughly comprehending these conditions ensures that your financial circumstances align with the demands of responsible lending. It is important to discern the difference between fixed and variable rates and how they can influence your future serviceability.

How the Team at WOW Homes Can Help

The home building consultants at WOW Homes can provide invaluable assistance as you venture into financing your home build. From pre-approval to understanding the nuances of your loan agreement, they’re dedicated to ensuring that your home loan caters to your combined financial situation. They’ll assist with gathering necessary documents such as tax returns and will work alongside the mortgage broker to find a home loan product that suits your needs.We also collaborate with experts such as Maxon Finance, brokers that have extensive experience when it comes to first home finance.

New Home Owner Couple Perth Home

Planning for Future Financial Security

Preparing for future financial security involves balancing short-term financial needs with long-term goals. As you contemplate building your first home with a partner, consider your insurance, ability to cover school fees, and accommodation of rising living expenses while securing competitive interest rates.

Setting Up Contingency Funds

Creating a contingency fund can safeguard your financial situation against unforeseen circumstances. This fund acts as a financial buffer, aiming to cover at least three to six months of living expenses. Start by reviewing your income, typical household expenses, and any outstanding debt. Factor in possible future obligations, like school fees, to determine an adequate buffer. Regular contributions to this fund, even in small amounts, can significantly improve your ability to cope with emergencies without disrupting your mortgage repayments.

Considering Long-Term Investment Opportunities

Long-term investments, such as an investment property, can potentially generate recurring income through dividends, boosting your overall financial position. Analyse your current financial status, including your credit report, credit history, and credit rating, as these are crucial in obtaining favourable loan terms. The aim is to improve your credit rating, ensuring your ability to repay debts is reflected positively. This, in turn, can lead to better interest rates and higher credit card limits, providing more leverage in your financial dealings. Always seek professional financial advice tailored to your unique circumstances, helping to align your property ambitions with secure investment strategies.

Frequently Asked Questions

Entering the housing market with a partner can be an advantageous move. Below, you’ll find specific information about how joint homeownership can impact your borrowing capacity, with insights tailored to couples building their first home.

How can joint homeownership with a partner enhance your loan eligibility?

Joint homeownership typically means you can combine your incomes, which can significantly increase the total amount you can borrow. This pooled financial strength often makes you a more appealing candidate to lenders, as you may present a lower risk compared to a single applicant.

What strategies can couples employ to maximise their home loan capacity?

To maximise your borrowing power as a couple, consider reducing your debt levels and improving your credit scores. Clear credit histories and controlled spending demonstrate responsible financial behaviour to lenders, potentially leading to a higher joint borrowing capacity.

Does adding a guarantor to your mortgage application bolster your borrowing capabilities?

Including a guarantor on your mortgage can enhance your borrowing power. This person, often a family member, agrees to take responsibility for the loan should you default, thereby reducing the lender’s risk and possibly improving your borrowing potential.

How do lenders calculate combined loan potential for couples?

Lenders typically assess your joint income, debts, credit scores, and living expenses to determine your combined borrowing limit. They use this information to evaluate your ability to service a loan together, considering both partners’ financial circumstances.

In what ways can existing property equity contribute to an increased home loan approval amount?

If one or both partners already own property, the equity built up in that property can be leveraged to obtain a larger loan amount. This equity acts as additional security for lenders, potentially increasing your borrowing capacity.

Why might a couple's borrowing power be lower than expected, and how can it be improved?

If your joint borrowing capacity is less than you expected, it could be due to factors like high debt levels, poor credit history, or unstable employment. Improving your borrowing power could involve paying down debts, ensuring timely bill payments, and possibly seeking higher-paying or more stable jobs.

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