Paying off debt before home loan application?

Hi, we have a small personal loan of $4000 which will finish in 9 months, is it wise to pay this off before applying for home loan or will it not matter. We only have 5% deposit and are looking to build in qld so will get first home owner grant. We rent at the moment and it's hard to save more as are rent is very high and we've just had another baby so down to one income. Many thanks

Banks look at your current earning capacity and commitments do anything you can do to increase the former and decrease the latter, the better.

Absolutely right - banks look at your total ongoing repayments vs your income, as well as your overall asset position.

What I would say though is it depends on your income and affordability - if you can afford the personal loan as well as the home loan & its deposit thats tight then it could be better to keep saving your deposit. Especially in a rising market.

Or if you definitely can't afford the personal loan repayments as well as the land loan then you need to pay it off first.

In terms of affordability thats both how you feel about managing the repayment and what the bank thinks you can afford.

The flip side is, if paying the loan off will put back buying by a long time - how much will prices rise & are you better looking at a guarantee situation?

Ring a good broker - won't take 10 minutes and it won't cost you a thing to get great advice.

Thanks for the advice, does anyone know what I should look for in a broker, new to all this, we live in Brisbane bayside thanks

Best advice is to ask your friends if they have used someone - I get all of my business from referrals from my current clients. If you get stuck you're welcome to give me a quick ring.

If you hold debt and inly have a small deposit I think your bank will tell you to keep saving ...min 10% without any debt 15% eith debt but remeber morgage insurance is going to flog you

They also look at the limits on your credit cards. Even if you pay them off each month. So if you have one (or a couple) reduce the limit to what you really need.