Buy Home or Wait / How Much to Spend?

aussie-bargainer on 02/10/2017 - 23:18
Last edited 03/10/2017 - 10:20 by 1 other user

I am in my early 30s with $170K savings in bank.
Recently I liked a land 380sqm which costs $530K and if I count minimum $320K in constructing the house it ads total $850K.

The land is in good area of western Sydney (Hills)
I will end up paying 50% of my salary as loan repayments.

I am with family of 2 kids and have single income of mine only as of now.

Is it ok to spend 50% of salary as loan repayments? Or should I look up other area to save $70K to 80K and keep the total price around $750K.

I have 2 weeks to decide. I paid refundable $1000 to secure the lot for 2 weeks.

I know all varies on individual situation but I want opinions of fellow OzBargainers.

Poll Options

  • 5
    Low Risk (Go for it)
  • 4
    Wait/change area
  • 4
    Medium risk
  • 29
    You are stupid
Financial

Comments

  • hell0 on 02/10/2017 - 23:22
    +1

    Yes, 50% is OK but do your own realistic budget and see where you are…

    • aussie-bargainer on 02/10/2017 - 23:28
      +1

      Thanks. I am doing it.

      I have 2 weeks to decide. I paid refundable $1000 to secure the lot for 2 weeks.

  • dcep on 02/10/2017 - 23:42
    +3

    if you're going to buy a land and build your dream house, no point saving that 100k, might as well go all out and make sure it ticks all your (or your wife's) boxes, because it'll be your home for many years to come where you share memories of your kids growing up which only happens once so don't miss it.

  • StarletGT21 on 02/10/2017 - 23:49
    +1

    I just finish building a brand new home - the price you see listed at the display home price list is the bare minimum with no upgrades so u want to add another 30%-40% on top for a finished house with average upgrades. All the homes u see at the display center are all decked out to suck u in. The house I was looking at was listed around 390k and when I finished it was around 600k mark with all the upgrades and I'm not talking about the best of the best upgrades too unless ur happy with no upgrades but trying telling that to the wife.

    • aussie-bargainer on 03/10/2017 - 00:00

      I was thinking $250K base house + $50K upgrades. But as yu said 30-40% I need to re calculate it again.

      Thanks.

      How about the land? I mean $530K on 380sqm land?

      • poboy on 03/10/2017 - 09:28

        You also need a landscaping budget don't you?

      • TheBilly on 03/10/2017 - 14:26

        For the area, your block is reasonably priced. In western sydney aka penrith the rate is $1,050 per sqm minimum. But on a side note a 380sqm is tiny.

    • vinni9284 on 03/10/2017 - 10:51

      $210K worth of upgrades? That's like your paying 35% more than list price.

      Do you mind me what did you upgrade? Single to a Double storey?

      Wow, what was the standard house like? Just a frame? lol

      I would say that you over-captilised a little(unless if you want to live there for the rest of your life)

      Usually, I would say that $30 - 50K upgrades seems to be the norm.

      • StarletGT21 on 03/10/2017 - 20:56

        if you get the chance go and sit with one of the sales person @ any display home you will know what I mean
        to answer your question yes it is a double storey

        First off the house facades, the base one is real shit ugly and upgrade to this is around 20k-30k depending on how nice you want it

        Electrical upgrades ( they give you like 10 led lights and only a few power points and then it is like 100 per led to be installed, then comes power point u want double or single, Ethernet points, gas points etc, u want shit led lights or good ones) - 5K

        Kitchen Upgrades - you want good color stone bench or crappy dull color, plastic splash back or nice glass ones, - how many draws u want in the kitchen, extra custom design cupboards you want nice smooth feeling cupboards with soft closing draws or the basic timber hard closing drawls, u want bin compartments, how big u want the bench and do u want water fall look, u want extra leg room - 14k right there already

        Flooring upgrades - small size tile or the large ones, laminate flooring or go for the hard wood - starting 10k up to 30k upgrades (hardwood expensive)

        Bathrooms upgrades -double vanity or single, u want tiles to go up to the ceiling or half way, you want to upgrade the tiles, you want a nook in the wall , oh and yea wat type of grout u want

        and the list goes on and on ……….

        • vinni9284 on 03/10/2017 - 21:52

          Yep.

          I have been through the same thing… and I must say, they see you coming from a mile away. I was getting sucked in to their upgrades however I had to hold back. I only got some bare essential extras that are part of the building structure and cannot be post-fitted.

          I understand that their are many underlying factors to chose a builder but tbh, if I am paying over $200K+ worth of upgrades, I would see what options other builders have as a comparison. Or maybe you have?

          As per your previous post, you stated that you were not getting the best of the best upgrades … so it just goes to show how are they really profiteering with all these upgrades, and still have more room.

          You would probably save $20K by hiring external contractors … eg Electrical, tiling, flooring & cabinetry.. etc

          But then, you want to get the builder to do all of the work so if anything goes wrong, they will try to do the usual and wriggle out of warranty or responsibility if they can get away with it.

          I hope you are getting an independant inspector? Unless it's already built.

          But I do totally understand where your heart gets involved and you want the best. You want to get all of it out of the way before you move in.

          I'm sure that your house would be georgeous especially with the upgrades.

          Personally, in my view, I would recommend $50K worth of upgrades as a guide.

          I do agree that they give you stuff-all basic home and to complete…. it to even an average look ¬ $50K

          Cheers

  • colinjames on 02/10/2017 - 23:51
    +1

    If someone will lend you the money. then it is a great idea until something changes and it is not.

    • aussie-bargainer on 03/10/2017 - 00:01

      Can you elaborate?

      • colinjames on 03/10/2017 - 01:24

        If you want something and someone will lend you the money to obtain it, then this is a great idea. If something changes and you no longer want the item, or have another child, then it is a bad idea.

        Have you lived in the area to know if you even want to live there?

        Have you thought about taking all that money and buying an existing house for less ?

      • oadvdotcom on 03/10/2017 - 11:12

        I think the land you bought are too expensive. I do real estate and the cost sould be 1200 - 1300/ sqm

  • [Deactivated] on 03/10/2017 - 00:03
    +4

    What do you mean a good area in Western Sydney? I didn't think they existed?

    • aussie-bargainer on 03/10/2017 - 00:06

      Doesn't exist. Still under development.😜
      Box Hill to be specific

  • airzone on 03/10/2017 - 01:45
    +1

    That's a lot of your salary…

  • tsunamisurfer on 03/10/2017 - 01:51
    +6

    OP…

    The common understanding of mortgage stress is 30%, I find that low but 50% is high.

    May I ask 50% of what? And is the 50% the minimum payments? Have you considered if you will be able to maintain the payments should the rates go back to the mean? Potentially 7%?

    • aussie-bargainer on 03/10/2017 - 10:38

      50% of income in hand. Not counting ~10% annual bonus.

      If it goes up to 7% incrementally in next 7-8 years, I think I can still survive.

      As per current lifestyle, I think I can save at least $2000-$2500 per month after loan repayment + living expenses.

      • CheapSticks on 03/10/2017 - 21:55

        no brainer then !! go for it !!

  • trustnoone on 03/10/2017 - 03:50
    +1

    50 percent seems a bit much, though I have no experience in this area, I'm assuming theres the other costs as well that you'd need back up for? It all depends how much you earn though I guess? For a family of 4, I'd think you'd need at least 70k a year in Sydney (less further out) so if you make about $140k then it should be alright?

    But you'd be quite stringent on that, I'm a single male 15 mins train ride from central, and I get 70k a year and while I save, I don't know how easy it would be to have a family on. The biggest crusher on your money is rent, I expect at least 35 percent of that to be from salary, assuming another 50 percent for this and your left with 15 percent for everything else?

    Random answer, no idea if its a good one, you might want to start with a granny flat at the land, live in that (so you're not paying rent elsewhere) and then get the proper place built slowly. Once completed, you can rent out the granny flat and make some money off it. Although constant construction would be annoying.

  • mskeggs on 03/10/2017 - 07:17
    +5

    If you currently spend 50% of your salary on rent plus savings for a house, then your budget allows it.

    • aussie-bargainer on 04/10/2017 - 08:34

      Currently I my monthly living including rent and other cost in total is 30% or 35% of income

  • CLoSeR on 03/10/2017 - 09:25
    +1

    Many claim that you want to aim for 30% of your wage towards mortage, in Sydney that's difficult starting out.

    If you can manage 50% now you should do it and just work hard to pay it off asap.

    Well done on the deposit.

  • poboy on 03/10/2017 - 09:30
    +1

    Servicing a 50% mortgage is do-able, but has very little room for error, especially with 2 kids (and childcare grr).

    Risks:

    1. Losing job
    2. Interest rates go up
    3. Personal circumstances change (medical, divorce etc)

    My close friend is >50% loan repayment and she says it's tough - but if it's a priority then you make it work.

    Good luck.

  • CLoSeR on 03/10/2017 - 09:33

    Op, is 50% based on current interest rates? You should be calculating on 8-10%.

    • aussie-bargainer on 03/10/2017 - 10:33

      8-10%? in how many years you see this coming?

      I may be wrong but if that happens, this will be disaster for many first home buyers.

      • CLoSeR on 03/10/2017 - 10:36
        +9

        Absolutely it will be disastrous, some think the govt won't let it happen. I'm not convinced the govt has that much control of the market, interest rates can certainly climb in the coming years and we should all be prepared. Some will not be able to hold on and will have to sell.

        I made sure I was able to service my mortgage at this rate so I can sleep at night.

        • TheBilly on 03/10/2017 - 14:32

          What are you basing this on? Monetary policy is a macro policy tied into aggregate demand (economic growth). If the economy grows they increase rates to stem the growth, if the economy shrinks, then they decrease rates to boost. So far the economy is NOT growing and it is shrinking in states. What reasons do you feel like the RBA will increase rates for? They dont increase rates just for property price growth. Its a macro policy that factors in the whole economy.

        • mskeggs on 04/10/2017 - 09:40
          +1

          @TheBilly:
          8% rates have been here in the last decade or so. I don't anticipate them any time soon, but the forex markets have priced in two 0.25% interest rate rises in the next 12 months.
          They might not be correct, of course, but that is the financial markets consensus at the moment.

          You can see the RBA & APRA are making changes at macroprudentiall level (changing the rules) to discourage housing debt because they do wish to keep rates low to encourage wider economic growth, but also wish to avoid further housing price inflation. I think they have left it disastrously late, as the very best they can hope for is impoverishing a generation, either the ones buying now shackled with huge loans with poor income growth, or the one coming next as they are unable to afford housing.
          And that is without any asset price deflation, which is a real possibility if, for example, China gets serious about restricting overseas personal investment as part of the next 5 year plan.

        • BobLim on 04/10/2017 - 12:20
          +2

          @TheBilly: Monetary policy in Australia only has a limited effect on the banks, which source a large proportion of their mortgage funds from overseas markets. The RBA/Govt can wave their hands, make threats, and set up commissions, but the reality is that Australian mortgages will rise with international interest rates, regardless of local policy.

  • iluvsydney on 03/10/2017 - 11:00
    +3

    There are quite nice pockets in seven hills, blacktown where you can buy bigger land with older but renovated house. Some even come with a granny. That can provide you additional income going towards your mortgage.

  • CheapSticks on 03/10/2017 - 11:08

    Buddy - at the price point of $750-800k - there is lot of support in Sydney. So if I was in your position - i will go for it subject to you being comfortable pricing in interest rate increase of say 50bps. Its always a push when you buy your first home !

    • aussie-bargainer on 03/10/2017 - 12:59

      What is bps? 50bps?

      • CheapSticks on 03/10/2017 - 13:06
        +1

        0.5% increase in interest rates. Currently not forecasted to happen till end of 2018.

      • CLoSeR on 03/10/2017 - 14:28
        +1

        basis points, it read it as bits per second.

  • SydBoy on 03/10/2017 - 23:45

    if your budget is $850k then you should consider other suburb then box hill. it is worth investing in bigger land with old house {brick} and further towards citiy. try acacia garden, Stanhope garden , Glenwood, kings langley, part of quakers hill, girraween….

    if you can pay mortgage of 680k plus save 2k per month after expenses they you are on higher pay…so try to work on budget that has better return

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