Monday moneyvator: Make that first home dream a reality

Monday moneyvator: Make that first home dream a reality

With Australian property prices skyrocketing over the last few years, I like many young Aussies am feeling squeezed out of the property market.

Prices are steep, especially where I live in the Northern Suburbs of Sydney. Just the other day a two bedroom apartment in my complex sold for a whopping $760,000. Flashback to 2010 and a similar property sold for just $360,000 – that’s a significant jump up of $400k in just 6 years!

So what should I do? Throw in the towel and enjoy relatively low rent forever or bite the bullet and get saving for that dream home?

I think the latter is the option I’ll choose. So if you’re like me and want to get a foot in the Australian property market door, here are a few tips I have for you.

1. Compromise

Of course, I would love to live in the leafy area of the North Shore but when I crunched the numbers using an online repayments calculator, the monthly repayments of a $760k loan would be a whopping $4,443*, which would be a major stretch for my budget.

That’s why I’m willing to move a bit further out, so that I can reasonably afford the monthly repayments and get started on my property portfolio (here’s hoping!).

2. Work out your borrowing power

Now that I’ve decided to broaden my area horizons, the next thing I’ll need to do is figure out which specific suburb to target and the type of property I can afford within that suburb. I found a borrowing calculator comes in handy for this, as it uses my income to help me figure out how much I can borrow even if there is a rate rise.

3. Kick start your savings

If I try to save the recommended 20% home deposit, I’ll probably be nearing retirement when I finally purchase my first home. Instead I’m aiming to save at least 5% off the property amount (plus the cost of stamp duty and other property related fees).

My number one tip is to open up a high interest savings account and set up a direct deposit from your everyday bank account, as this will not only show the lender you have genuine savings but will also mean you’ll be saving without thinking about it.

4. Check your eligibility for your state’s first home owners grant

Since I’ve never owned a property in Australia, I’m eligible for the NSW’s first home owners grant, which is a one off sum I’ll receive towards my first home. I’ll also be exempt from the high cost of stamp duty if I decide to purchase a property costing less than $550,000. But since this grant is only available to first home buyers purchasing a new property, I’m still weighing up whether I want to go down this route.

5. See if you can get a parental guarantor

One idea I’m trying to warm my parents up to is going guarantor on my first home. What this means is a portion of their property will be used as security for my first home. There are many benefits of getting a parental guarantor as I’ll avoid the cost of lenders mortgage insurance, which is an insurance that protects the lender in the case I can’t repay the loan and I’ll also be more likely to be approved for the loan. Of course, if my parents do decide to go guarantor they’ll have to weigh up the risks and get independent financial advice before they go ahead.

6. Find the right home loan

Once I’m ready to purchase my first home, I definitely want to ensure I find a home loan that’s flexible. I’m thinking that a fixed rate loan is probably my best bet, as I won’t have to worry about my monthly repayments changing for the first few years. It’s also important to me that the loan comes with an extra repayments facility because I want to be able to make additional repayments on my loan whenever I come into extra money.

So those are my tips for making your first home dream a reality, what are yours?

*5% interest rate paid back over 25 years

Monday moneyvator: Make that first home dream a reality was last modified: March 7, 2016 by Rebeccah Elley

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