How to get a leg on the property ladder
June 3rd, 2019
High property prices are making it tough to pull together a first home deposit. But with interest rates still historically low, chances are you could handle the home loan repayments.
If getting on the property ladder is on the agenda, it’s time to think outside the box and explore new ways of buying your first home.
KNOW YOUR BORROWING POWER
“How much can I borrow?” is a common question among first home buyers, and knowing your borrowing capacity is a critical first step that allows you to establish a buying budget.
On the plus side, the loan size you can afford is determined by your income and living costs – not the size of your deposit. For an accurate figure of your borrowing power, speak with your lender or mortgage broker.
This is important. Your first home doesn’t have to be your dream home.
As a first home buyer, it pays to be flexible, and compromise can be the secret sauce that lets you afford a home of your own. According to ME research, one in three first home buyers say they’re happy to settle for a smaller property or a suburb that’s not their first choice. It’s all about getting a foothold in the market. You can upgrade later when you’ve built up home equity.
BUY WITH LESS THAN A 20% DEPOSIT
Here’s some good news. It’s not essential to have a 20% deposit to buy your first home.
Plenty of lenders accept a far smaller deposit, and while this means paying lenders mortgage insurance (LMI), that’s not always a bad thing. The beauty of LMI is that it lets buyers with a low deposit buy at today’s prices. Yes, it makes sense to minimise home buying expenses but when property values are rising, the cost of LMI could be considerably less than the rise in home prices if you hold out to save a bigger deposit.
REVISIT THE FIRST HOME OWNERS GRANT
More good news. Since 1 July 2017, the First Home Owner Grant and stamp duty discounts have been ramped up in a number of states and territories. So head to an online stamp duty calculator to check how much of a financial helping hand you’re eligible for.
Here‘s something you may not have considered – making your first property a rental investment rather than a home to live in. As 1 in 10 first home buyers are discovering, it’s a strategy with plenty of potential.
The rental income and potential tax savings of negative gearing can make the loan repayments more manageable, and buying as a rentvestor opens up affordable locations you may not have considered as an owner occupier.
Whether it’s buying with mates or family members, it’s worth exploring every option to buy your first home. Using ‘outside the square’ strategies will help you achieve your goal sooner.
This article is brought to you by ME. For more information, please visit mebank.com.au
Members Equity Bank Limited ABN 56 070 887 679.
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