Hi I have a personal loan with repayments of about $940.00 per month. I have been advised I don't qualify for a home loan due to this liability. The loan in question still has about 5 yrs left. Should I look at buying land or just pay off the loan first?

I am wanting to get into my first home asap

Hi Cheree,

There's two things the banks look at when you're applying for a loan:

1) Whether you have a big enough deposit (this could include equity or a guarantor).
2) Whether you can afford the loan repayments.

Assuming you are all good on the deposit front it sounds like the repayments test is where they theres an issue. One option is to reduce the amount that you pay for a home therefore reducing the loan amount. But this can mean sacrificing where you can choose to live or the size or build of the home.

Another option is to wait to payout the personal loan then reapply to see how this affects your borrowing power.
The bank lender or broker should be able to give you an idea of how much you can borrow both now and once the perosnal loan is repaid so you may want to find that out to understand how much they will lend you in each case.

If you still can't borrow enough to keep up with the repayments you may need more income or a partner or boarder to assist with the repayments. If you buy with a partner they will also be liable for the full mortgage debt so this is a serious financial committment to consider.

I hope you found this helpful let me know if you have any further questions.

Stuart Christie
Financial Planner

Hi Cheree,
Without knowing more details, it's hard to determine what is best for you. But on the surface, purchasing a land may not be the best idea at this stage for you as you may increase your debt without having being able to construct a house within the next few years.

Speak with a finance broker and find out you capacity, each bank will assess you differently, just because one lender says no, doesn't mean everyone else will say no.

Regards,
Simom