Buying a House - When Should I Speak to the Bank?

Friday, February 21, 2014

When buying a house, there’s an understandable temptation to steer clear of a bank until you know exactly what you want for fear that they’ll bog you down with red tape or additional costs. However, speaking to the bank early on gives you two distinct advantages over your house hunting competition.

Firstly, it lets you find out how much you can borrow for a potential mortgage. It can be dangerous looking at buying a house without knowing the limits of your funding. You can grow attached to a property that’s actually well outside your budget and you’ll find yourself making sacrifices you shouldn’t to afford it.

Secondly, it allows you to secure pre-approval for financing. This makes you a more attractive prospect for real estates and sellers. For a basic hypothetical, imagine you were selling your dream house and you were faced with two attractive buyers – only one of whom had secured financing. Who would you choose?

There are exceptions, of course. If you aren’t sure you want to buy a house, a visit to your local real estate (or a real estate at your desired location) will help you get an idea of what the housing market is doing in that area and whether now is the best time to buy. You could even back this up with a little bit of extra research before going to your bank. 

(For example, the Reserve Bank of Australia is a great resource for checking on changing interest rate trends. If you look under ‘Zero Coupon Interest Rates’, you’ll be able to see what interest rates have been doing since 2009. Or earlier, if you’re of a mind. ‘Zero Coupon’ just means a loan without any special discounts.)

Still, conventional wisdom says that it’s best to speak to a bank before house hunting. I'm not the only one who thinks so, either. If you consult the Real Estate Institute of Queensland (REIQ)’s step-by-step process for buying a house, you’ll see it’s top of their list. Turns out it’s a pretty crucial part of the process.