OK, we all know the jokes about avocados costing the youth of this nation their homebuyer dreams. We get it. The fact that buying a home is so far out of our grasp that it’s able to be ridiculed by the media and trivialised in this way is just… exhausting. Of course, millennials want to buy a home. But the fact is that home prices have been pushed to such an incredibly high ceiling that it makes getting there kinda tough.
That said, tough does not mean impossible, which is why we created this homebuyer guide. And if you stick to this and want it bad enough you will buy your own home. While it might not be your dream home in the attractive area at first – just know that everything takes time, property investment is a life-long journey, and you will get to where you want to be eventually with perseverance and grit.
When you want home loan advice from people who work with home loans day in and day out, contact Buddii for solid advice you can trust. We are personal finance brokers and are here to provide you guidance to get you started on your property investment journey.
Saving for a house is hard but not impossible
Have you ever thought about saving $100 000? It seems like a ludicrously large amount of money to save, especially if you are a single person – but we’re here to tell you that it’s not impossible.
Take a look at this chart below from the Motley Fool where they look at how long it takes to save this amount of money. If you are saving $100 a month, it will take you just over 30 years to save $100,000. That’s a fairly long time. But if you are committed and are saving $1,000 a month each in a couple, it’ll take you just under four years to hit that $100,000 mark.
- Reaching this amount is where your budgeting and curtailing comes in handy. You have likely seen those generators where you plug in how many lattes you drink a week and how they all add up.
- Think about cutting down on unnecessary spending to save more money, and yes – it’s not amazing thinking about making your own lunches for work for four years. But what’s four years of home-made salads when at the end of it you have a home you can paint any colour you want?
- If you’re like any of the millennials we know, you have a side hustle which could potentially earn you a bit of extra cash. Use your skills to earn more, save more, and then use this money to buy your own home.
You don’t necessarily need a 20 per cent deposit to purchase your first home
You have likely heard that you need a 20 per cent deposit to buy your first home – and while our first tip was about how to save $100,000 the fact is that you can buy a home without saving this much. But you do have to pay something called Lenders Mortgage Insurance (LMI) to protect the lender from loaning you this much. The general principle behind LMI is that when a lender fronts money for you to buy an asset, they’re taking a risk. The house you buy is being used a security on that purchase. But house prices can fluctuate – and while they can go up, they can also go down.
- If the lender provides more than 20% of the purchase price, the value of the house might fall below the borrowed amount.
- If you don’t make your payments and the lender has to sell the home to recover their lent amount they may not recover the full amount.
- LMI protects the lender against this risk.
You can buy without paying the 20% deposit, but it is preferred by lenders. A 20% deposit can secure you a lower interest rate, and can ensure that your mortgage is shorter with lower repayments. It is something to consider, and ultimately comes down to your preferred profile for risk, your research in the property you are buying, and your capacity for repayments.
Be realistic about what you can repay
When you do go to banks to get your mortgage sorted out, you need to be aware that a lender may well be prepared to pony up a whole lot more money than you can afford to repay. This is a big no-no. You absolutely must not over-extend yourself because you’ll wind up in financial difficulty and will find the whole homebuying experience a nightmare. If this means that you have to buy a house out in the suburbs where you absolutely would not live in a million years, then guess what? That’s the house you can afford. It doesn’t have to be forever, and you may find that you actually like the ‘burbs. The point is that borrowing too much to buy a home that is over your budget will lead to financial hardship.
- Buying a home is ultimately a financial decision; you need to separate the emotion from a purchase and do not over-extend yourself!
- While you may have to compromise your lifestyle – especially after scrimping and saving for a few years – it will be the best thing in the long run.
- Interest rates can go up. Be realistic, because while they’re low right now, it is not unheard of for banks to raise them. And with a capital amount to repay of hundreds of thousands, a raise of 0.1% can actually make a huge difference.
Be real about the true costs associated with buying a house
If you have never bought a house before (which we assume you haven’t done – you’re reading this – hi!) it’s wise to have an understanding of what you actually have to pay. It’s not a simple matter of saving up and giving the bank your hundred thou’ – you’re going to have to pay more, including:
- Stamp duty
- Transfer fees
- Government fees
- Building and pest inspections (which you absolutely must do)
- LMI (if you’re going down the >20% deposit route)
- Conveyancing costs
- Legal fees
And anything else that comes up. Bottom line is, you need to factor another $10,000+ dollars into whatever you have budgeted for your house purchase and need to be able to pay this as they come up.
Also, you will need to get insurance on your property the moment you sign the contract. There is liability for damage which varies across Australia, but the point is that you need to be covered. Ask your lawyer about this one.
Contact Buddii Today
We hope that some of these tips have been helpful and have opened your eyes to some of the realities of homebuying in Australia. When you are ready to get started on your homebuyer’s journey – call us. You can even call us ahead of time – years ahead of time – to get some advice. We can help you consider what you can afford, and can discuss the realities of home investment and lending with you.