Hi all, got recommended this site by a friend and it looks very professional and full of rich information.
I’m 21, and at present saving for my first home. I’m not overly interested in inventment to create positive cashflow yet, I’m more concerned with buying a house I can live in.
I’ve aimed my savings somewhere around the $100,000 mark for my deposit. I live in Sydney, and wish to buy somewhere around the Harrington Park area (for those who know it). Am I being optimistic in hoping for a loan of around 450,000 to 500,000, even with that deposit? From what I’ve read, how much you borrow greatly depends on how much you earn, and the couple of online calculators I’ve used (CommBank and ING Direct) have both estimated I could borrow around that much (40% of combined income?). Do people normally furnish a house with the home loan itself (overborrow by say 20,000)?
My thinking at present is to save up this deposit over the next couple of years (I’ve already got a decent starting balance), which I assume is pretty large for a first home, and get into the house I want to live in for a long time. I want to worry about investment and everything else after that.
I’m sure there are plenty of people who can offer positive advice of my options to achieve this goal. Thanks heaps in advance.
Hi Daniel
It’s great that you can have the vision of owning your own home and the forsight to be able to save for it. I am sure you are well on the way to achieving it.
One suggestion I would like to make is why not consider an investment property or several and then in a few years pay cash for the house you wish to live in.
Keep up the progress.Mark
“Is this taking us CLOSER to our goal?”
Thanks!
As tempting as buying the house outright sounds, I’m still more tempted to save risk free while I’m comfortably living at home, and buy the house I want to live in when I have my target saved in a couple of years. I work a decent full time job, and also a second job part time, so getting cash away at the moment isn’t too much of an issue.
I’m still not 100% of the concept of equity (the differnce between what the property is worth and what I owe?), but I always wanted to buy the house I want to live in, then once I get settled and start paying that off, use the equity i build from there to buy IPs. I suppose the disadvantage of that would be that equity is easier to build on smaller properties (Ie; the difference between value and owing would always be smaller as less interest?)
What I really want to know is how much people think I’ll be able to borrow with a decent joint income and big deposit. Is the 40% of income for repayments rule set in stone by banks? I’m concerned with getting myself setup over the next 3 or 4 years (I’ll still only be 24 or 25), then tackle the IP hurdle depending on the market…
Hi Daniel,
Any financial institution will be able to give you an idea of your borrowing capacity. Just go and talk to them to gain a greater understanding of your overall position.
I agree with Mark. If you are currently living at home (so one assumes not having to pay rent, perhaps just board) you are in the ideal position to start your investment portfolio. You could potentially reach your target far quicker.
Wendy
“Say what you want and be who you are because those who mind don’t matter and those who matter don’t mind.” – Dr. Seuss.
Wendy Chamberlain | Chamberlain Property Advocates
https://www.wendychamberlain.com.au
Email Me | Phone MeMelbourne Buyers Agent & Sellers Advocate | Independent | Flat Fee
Hey Mate,
I bought when i was 20 last year and found out that if your young banks will usually lend you alot less than someone older. Basically you need to go speak to someone and maybe from there you can have a stradegy to help you buy your first home.
Cheers.
Hi Daniel
Its great your saving for your first home. Try and save as much deposit as you can. The 100k goal seems like a good start. But remember, if your thinking od borrowing 500k, thats $600 interest a week. Are you able to afford this and all the other bills associated with home ownership? Unless you like to be highly geared, make sure you do all your calcs before hand.
Hi Daniel
At 21 years I was backpacking around Europe, burning all my hard earned cash.
Don’t forget to live a little, because you never know when things might head south.
No, seriously, I would be very concerned about going into such a huge mortgage first off. Can you not stand buying a cheap flat and doing a reno? That way you can gain satisfaction from your handy work…increase the value…and get into making your money work for you rather than being a slave to the one property and the resulting cramp on your lifestyle and investment opportunities.
ArtThanks for all the replies so far.
I guess fear of the unknown is what turns me off going the IP route to my goal. I can see how saving a deposit and getting a loan will get me in the house I want in a few years, but the path of buying smaller Investment Properties now is blurry. Could you guys try and explain how this would achieve my goal more efficiently?
Also, if I was to be ignorant, and go down the savings/loan track, on a property like that, what sort of investment options would I have afterwards? How quickly would a property like that (that I was living in repayng) earn equity? I’m guessing on a loan of say $450,000 to $500,000 there would almost the same again in interest, so it would take longer to earn equity, and therefore get involved in the IP market?
Bump
Yes.
Hi Daniel,
At the end of the day the decision has to be yours and the options in front of you are many.
For mine the key iingredient is what do you really want – from your comments it would appear that a ‘home’ is your preferred option.
While this is admirable your home loan is one of the hardest loans of all to meet. The repayments and costs all come out of your pocket after the tax man has rifled through you pocket, the loans are generally on the large side and the period paying off the loan is usually quite long.
I would also add that there is a tendency to get the ‘best house in the street’ and load it up with all the current ‘doodads’ that money can buy.
I must admit that I got a sense of this from your initial post. For me oneof the best lessons I have picked up is that delayed gratification is one of the best and safest ways to wealth. Try and overcome the need to continually buy goods on credit and you will be well on the way.
For example if you do borrow an extra $20K for furniture it will largely be outside the home loan as the bank will lend on the basis of their valuation. This will be done without any consideration of furniture. In effect this means that the $20K for furniture will come from either your own savings (thus in a round about way increasing your borrowings or via credit card or a Harvey Norman special – no repyaments now deal)
A better avenue to explore is to aim a little lower – pick up some solid furniture from auctions, second hand places etc so that you furnish your place at a functional but not flash level.
On a similar note do you really need a $500K home?
While getting into the real estate market is admirable – getting in at a level above your needs is not necessary smart. Maybe a suburb further out with a smaller price tag will do the job. If the suburb of your choice is it then consider something a little smaller and less pricey.
If you do buy a ‘home’ then you may want to consider renting it our for while and continue to live at home. This way you will have tax advantages for a couple of years while at the same time having your foot in the proeprty market. At this stage of the cycle it is generally cheaper to rent than to buy – this option may be a combination of that suits your long term goal.
If you do buy a home I would suggest that you get in touch with a broker and accurately determine your borrowing capacity. This will give you a target to aim at. The lending market has changed considerably and higher LVR loans are now available as commonplace.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113
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