First Home Buyers: It’s Okay to Eat Smashed Avo
Five Tips for First Home Buyers
I really feel for first home buyers. Not only is the current market tough to get into, banks have stricter qualifying criteria than ever, and now first home buyers are copping social media flack for their food choices. Let’s face it, everyone should be able to enjoy a good smashed avo and coffee at their favourite café. So in order to set the record straight, here are my top five tips for first home buyers.
1. It’s okay to eat smashed avo.
It’s not just a headline. I mean this! Breakfast out will cost you around $20. Once a week, that is acceptable. What is not okay is buying lunch, coffee, morning tea, afternoon tea and drinks every day. On average that will cost you $20 per day. Over the course of a week that is $100. That money needs to be in your savings account. (Yes, I know saving is not fun or sexy but the bigger picture is to buy a house. And that is fun and sexy.)
Putting away a regular amount of money every week/fortnight/month is known as genuine savings. In order to purchase a home you will need to demonstrate that you have managed to save 5% of the purchase price in ‘genuine savings’. When you apply for a loan the lender will ask for three months savings statements to fulfil this criteria.
2. Avoid personal loans, car loans and credit cards.
Over the ten years I have been a broker I have often heard people talk about mortgage stress. As a broker I very rarely see mortgage stress. What I see is credit card, personal loan and car loan stress. When applying for a mortgage it is quite acceptable to have other liabilities. However, when deciding whether you can afford the loan, the lender will take the repayments on your other liabilities into consideration. So the greater your repayments, the less the lender will lend you. If you have a couple of credit cards with $10,000 limits and a car loan with a repayment of $600 per month you may have just priced yourself out of a loan.
If you do have these, then all is not lost. Look at the monthly repayments on loans and seek to reduce them. Close or reduce the limits on any credit cards you do have.
3. Have a consistent savings plan – and stick to it. Budget!
This ties into my first point. Saving is hard work and really not fun. I think the best way to achieve regular savings is to have a goal in mind and work towards it. As a broker I often see first home buyers who want to buy a house, but have little savings. The good thing is that they are seeing me! This means they are getting their act together and putting a plan into place. They understand the process of borrowing money and have something to work towards. Much more often than not, these same people come back to see me 3 months later with their savings in place, ready to buy a home.
4. Buy your parents great birthday and Christmas presents – Family Guarantee
This one is controversial, more so than the smashed avo. Most lenders have in place a Family Guarantee option whereby parents can put their home up as security. This means that genuine savings and Lender’s Mortgage Insurance (LMI) can be avoided. The lender will take a security charge over the property that you are buying for 80% of the property value. The remaining 20% plus purchasing costs will be secured against your parents’ property.
Hence the controversial part. If the loan is not paid, the lender has a claim to your parents’ property or can ask your parents to make repayments on the guarantee limit. Obviously it is up to each family member and particularly your parents to decide if this is something that everyone is comfortable with. Many lenders will ask your parents to seek independent legal advice. As a broker I’m also careful to make sure that this is something that parents and children alike understand.
5. See your local MoneyQuest Mortgage Broker!
The above are guidelines only. Every situation is different and lenders advance different amounts in different situations. As a broker I can compare many lenders and I understand lending policies. I also understand Geelong! Also there are exceptions to the above, including genuine savings…. So call me!