Five tips to help get you into the property market
Australia’s median house price has more than tripled in the past twenty years. With the current national median house price sitting at around $475,000, it’s not getting any easier to get your foot on the property ladder, so here’s some advice on how to get a leg up if you’re wondering how you’ll ever be able to afford your own home.
- Consider a Plan B
Saving a huge deposit and waiting for the ‘right time’ to get into the market could mean you’ll be waiting a long time. So, if there’s no time like the present, there are some options to help homebuyers seal the deal.
If a 20% deposit seems out of reach and you want to avoid paying Lenders’ Mortgage Insurance, which is there to protect the lender if you default on your loan repayments, your family can act as guarantor where the deposit amount for your home is held against their home asset. When your repayments against the loan have covered the deposit amount, the guarantor will be released, and the loan will be solely under your name.
You can also pool your borrowing power with family and friends and co-own a property, while retaining control over your own mortgage.
If you’re a first home buyer who’s struggling with the cost of repayments, consider lengthening the term of your loan to 40 years, rather than the standard 30 years. It will bring monthly repayments down and you can reduce the term of the loan when your circumstances change.
Also, check if you and your property are eligible for a First Home Owner’s Grant or other concessions in your state or territory.
- Trim the fat
Sometimes, getting something means giving up other things – and this is very often the case when you’re buying a house. Saving for your deposit should be your top financial priority if you want to get into the property market.
You may need to give up your privacy by moving in with family members or roommates to save a deposit more quickly.
Your social life may need to change, and luxurious lifestyle extras may need to be cut right back. Cut back on your spending by learning to appreciate the taste of the free office instant coffee, taking public transport, walking or cycling when you can, scaling back purchases of new clothes, extending the time between your hair appointments, packing your lunch, cooking at home and quitting the gym and going for a run instead.
Everyone is different, but there is fat to be trimmed from every budget, and it can amount to hundreds of dollars each month. Budget planner calculators can help you find the savings.
- Go the distance
Saving for a deposit and paying a monthly mortgage are two very different things, so be sure you understand the life-long commitment of loan repayments. To get into the property market, and stay there, you really need to get the most from your money and establish great money habits.
Don’t let yourself relax on saving. Set up automatic deductions on pay day and put any cash you squirrel away where it will do the most good. A high-interest savings account or term deposit with compounding interest rates will make your money work hardest for you.
Consider establishing an alternative income stream to supplement your salary. You could freelance in your current profession, you could work evenings and weekends or ‘moonlight’ at a pub or restaurant, you could become an Uber taxi, sell excess stuff on eBay, or get creative and start a business on the side. Every little bit counts.
- Get your affairs in order
It really does pay to get your financial affairs in order before taking on the massive commitment of a mortgage.
It may sound obvious enough, but make sure you pay down debt like credit cards and personal loans as much as you can before signing up for a mortgage.
Even if you earn good money and you’ve saved a decent deposit, a bad credit rating can mean that you won’t be approved for a mortgage. That outrageous phone bill that took a few months past the deadline to pay off five years ago could come back to haunt you when you’re seeking pre-approval for a home loan, so make sure there are no skeletons in your closet.
Credit scores evaluate risk for the lender, so improve your risk profile by minimising the number and frequency of credit card applications and loan enquiries too.
Be sure to also review all your insurance policies and service providers. Get on the phone, visit their branches or compare them online to get the best deal you can. Sometimes, getting all your insurance, energy or data needs from the same supplier will reduce your premiums or bills. Bank whatever savings you make straight away, rather than enjoying the extra spending money – sacrifices, remember?
- Do your research
With interest rates at their lowest for more than 50 years, there are some great rates available, but a small difference in the rate, term, type, and the fees and conditions of your mortgage can have a huge impact over the life of the loan.
There are a lot of different loans available: fixed, variable, split, offset, interest-only, investment loans, line of credit loans and introductory rates, so do your homework. Talk to the experts about what you need, and take their advice into account, but be sure you fully understand your options.
And remember, the purchase price isn’t the only cost when it comes to buying a property. A good rule of thumb is to allow 5% extra for costs like loan application fees, stamp duty, legal fees and council rates.