Finance tips for getting ahead!
Ahh, the first home buyer – it seems no other generation to date has faced a more difficult environment to get into their first home.
Gone are the days of the 20 percent deposit, with more than two-thirds of first home buyers opting for minimum deposits anywhere between 1 – 10%, or relying on a donation from the fam.
We interviewed Rhys Orchard from Swan River Finance, who says when it comes down to saving, research and common sense goes a long way.
1. What are the main issues facing first home buyers getting into the market?
The most critical issue for first home buyers is being able to come up with the deposit required to purchase their first home. Most banks require a 5% genuine savings* deposit which equates to $26,250 based on the current median house price in Perth.
Keystart does assist in helping first home buyers get in to the market sooner as their minimum deposit requirement is a 1% genuine savings with the first home owners grant providing the remaining funds. The increase to the FHOG for FHB’s building a new home is definitely assisting FHB’s to get their foot in the door, but it still remains difficult for FHB’s to save a deposit while living costs remain relatively high.
2. What are factors to consider for first home buyers that are currently saving a deposit?
A.Saving a deposit proves to be one of the biggest hurdles to buying a first home, wage growth has been relatively low over the past couple of years, job security has become more uncertain and the cost of living has remained fairly high which are all factors contributing to this being an issue.
The main considerations to take into account:
Genuine Savings is the requirement to save or hold a minimum deposit amount for at least a 3-month time period.
Having too many unsecured debts / credit cards prior to applying for a home loan. Too many additional liabilities will have a massive impact on your ability to borrow for a first home. Work out how important it is to take out a new car loan if you have a goal of entering the property market soon because it could be the difference between being able to buy a home or not. Likewise, living outside of your means and accruing credit card debt can have the same impact.
Credit Rating – it is crucial to maintain a tidy credit history so it doesn’t affect your ability to borrow funds for something important in the future. Young people rarely realise that not paying their mobile phone bill, or defaulting on a small personal loan can be the difference between having a finance application approved or declined.
3. What are your top 4 tips to those wanting to save for their first home?
The four tips I can share with those saving for their first home are:
1. Open a dedicated/specific savings account in the name/s of the individual/s intending on purchasing the property only. At the time you apply for finance the bank / lender will want to see clear evidence of your genuine savings. The ownership of the account must reflect the names of the person/people purchasing the property – set a clear savings goal!
2. Speak to a finance broker/finance professional as a the first port of call – they can work out your borrowing power and reverse engineer the numbers to give you the exact amount you will require of savings/deposit to come up with which will help work out a clear strategy and savings plan.
3. Reduce your cost of living as much as possible while you make it a priority to save for a deposit or enter the property market. Limit or reduce your non-essential spending. A small amount of short term sacrifice will speed up your ability to enter the market. If this means living with parents for an extra 6 – 12 months, or a few less nights out, it will be worth it in the long run. It is about prioritising what is most important to you.
4. Explore all options - If you have the ability to eliminate the need for Lender’s Mortgage Insurance (LMI) by coming up with a 20% deposit or a security guarantee from parents / family members this will save you a substantial amount of money not only in Lender’s Mortgage Insurance premiums but in most cases the banks will offer more attractive interest rates when there is additional security being offered.