DECEMBER 13, 2016
Owning your own home before you’re thirty
When you’re wanting to get into the property market for the very first time, it can be easy to get disheartened about your chances. Between the booming property industry, with strong demand and rising house prices, paired with high levels of unemployment and wages that don’t seem to be going anywhere, it can seem like mission impossible.
It’s easy for Gen-Y to roll their eyes when their parents – who benefited from low house prices and rising wages in their youth – scold them for not venturing into the real estate market during their 20s and 30s.
There’s no doubt about it, it’s much, much harder now to get into the property market than it was in years gone by. But just because it’s harder, doesn’t mean owning your own home by the time you turn 30 is impossible.
Want to own the home you want before you blow out the candles on your 30th birthday cake? Here’s some tips to make that lofty dream a solid reality:
If you’re thinking about buying your first home, you’re most likely also thinking about swapping rentals and landlords for finally living in your very own place, where no one can come and inspect it on a whim.
But owning your own home by the age of 30 may require a bit of entrepreneurship on your part. It may be a bitter pill to swallow, but get comfortable with the idea that the first property you buy may not necessarily be the first you live in. Your first property could instead be an investment property. This means you’re not necessarily restricted by finding something that ticks all your own boxes, and is also within your price bracket. Instead you can look further afield and be led by your budget. Some younger people are choosing to buy modestly priced homes in outer suburbs and then saving for a deposit to buy their own home through collecting rent.
Though many investments do not turn a profit immediately, they do produce a return over a few years or two. And as house prices rise, so generally too does rent. So once your investment starts generating a solid income, you can build equity and put the proceeds towards a deposit and eventually, your second mortgage.
Sceptics say Gen Y is too addicted to travel and their weekly ‘smashed avo’ to have anything left over to save in the bank account. But saving money is the most important step towards buying into the property market, and there are many smart ways to save money without resorting to a hermit living on packet noodles kind of lifestyle.
Putting aside money into a high-interest savings account as soon as you’re able shows lenders you’re a low risk. It’s even better if the bank rewards you for deposits without any withdrawals. And it’s never too early to start savings – ideally get into the habit while you’re still at school (you may need your parents to help you open an account).
If you can put away 3 per cent of your home’s purchase price over a 6 month period, lenders will look upon your application more favourably. Other tips are to put away at least half of any tax returns, bonuses or commissions that you get, and send them straight into that high-interest account.
Another important factor when applying for a mortgage is your credit score. This is a number that indicates to lenders whether you’re a good candidate to lend to, and the higher your credit score, the better. It’s basically a figure that shows the likelihood of you making your repayments on time, and managing your finances well. This score is created based on your credit history, such as how many times you have applied for credit or loans, how much debt you have available, whether you make repayments on time, as well as things like defaulting on loans or bankruptcies.
Back in the day, your credit score was primarily created based on negative credit events. While those factors still affect your credit score, a new system known as Comprehensive Credit
Reporting (CCR) takes into account the positive actions you take, like consistently making repayments, as well as other additional information to give a more accurate picture of your credit history.
So while you’re saving for that deposit, if you always make your repayments on time, you could see an improvement in your credit score.
According to latest statistics from Digital Finance Analytics, around 20 per cent of first-home buyers ask for their parents’ help with a deposit when applying for a mortgage. On average, parental contributions are a whopping $70,000.
Just remember, if you go down this path, banks won’t view this as favourably as your own savings, and some financial institutions have tightened their lending criteria when it comes to you getting a large part of your deposit from an external source.
If you only have a small deposit, another path you can go down is have your parents co-sign your mortgage as a guarantor, but this has implications for your parents, so they need to make sure it’s the right financial decision for them.
If there’s money to be made, you’ll find a slew of professionals to help make that money for you. When you’re looking to buy, buyer’s agents can help you find a home that suits your budget and strategy. They can also help you negotiate the final sale.
And don’t forget to do plenty of research and get advice tailored to your personal situation. Particularly when it’s your first time buying, it can be handy to put together a team of experts to help with the process. You should bring a solicitor who specialises in real estate on to your team, as well as an accountant to navigate tax and negative gearing. It’s all part of investing in real estate to get into your dream home sooner rather than later.
Author: Bill Tsouvalas is CEO and managing director at Savvy. He has a been working in the mortgage & assset finance industry for over 10 years. He often writes articles on mortgage, finance, and insurance topics. Please visit https://www.savvy.com.au/home-loans for more information.
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