How Much Do I Need to Save to Buy My First Home In Geelong?
Saving to buy your first home is hard. Really hard. In the short term it is boring, unglamouros and a hard slog. However, when you buy your first house, it is soooo worth it. One of the initial questions I get from first home buyers is “How much Do I need to Save?” When answering this there are a couple of points worth noting.
Five Percent Genuine Savings
One criteria that lenders look for when approving a loan is that the applicant has 5% in genuine savings. This means that five percent of the purchase price the applicant must have saved over time. It notably excludes assets which have been sold, such as cars, lump sum tax returns, and any money saved in someone else’s name (such as a parent holding onto their child’s savings in their own account).
Loan to Value Ratio (LVR)
When lenders look to lend money, they consider LVR. This is the loan amount divided by the property value, x100%, expressed as a percentage. Most lenders on my panel will lend 95% of the property value. The mistake that I see many first home buyers making is that they assume that they will therefore need only 5%. Whilst logical, this conclusion is unfortunately incorrect. When buying property there are costs involved, such as stamp duty, transfer fee, conveyancing costs and mortgage insurance. These costs need to be covered in addition to the purchase price.
Lender’s Mortgage Insurance (LMI)
This is a fee charged by the lender when you borrow more than 80% of the property value. It is actually a percentage of the loan amount. The further you are above the 80% mark, the greater the percentage. This insurance does not protect you, the buyer, it protects the lender should you default. It ensures that the lender will recoup all of their money in such a situation.
To put savings into perspective, the median house price for East Geelong is $562,000, South Geelong $534,000 and West Geelong is $642,500, according to CoreLogic for Jan-Dec 2017.
On a $600,000 purchase you will need to save $57,000 (including $30,000 in genuine savings). As an example, the calculations are as follows:
Purchase price $600,000, Government charges $1,614, Conveyancing approximately $800, miscellaneous fees $300, LMI $22,660 = total funds required $625,374.
$625,374 minus buyers contribution of $57,000 leaves a loan amount of $568,374 and thus a LVR of 94.73%.
If you have any further questions about saving to buy your first home, please call me at MoneyQuest Geelong on 0401 910 070.