Have been looking for a while, tossing up options and have finally decided to move forward and buy a place. Exciting times!
I have $15k saved up, but can easily stretch that to $25k. Income is decent and steady. Would this be a realistic deposit for a loan worth $500-650k or should I wait & save up more? My brother tells me to save up at least 20% but that seems unrealistic especially since prices are so low now so I'm thinking it's better to get in ASAP
No banks nowaday will require at least 20% deposit especially for an apartment
likely to revert back as before , government are desperate on protecting the dominos from falling
https://www.abc.net.au/news/2019-07-05/apra-relaxes-mortgage…
I'd agree with your brother. 20% deposit is minimum, anything less than that will require LMI which makes your repayments goes up. And even if you are willing to pay LMI, bank will still require you to have at least 5% deposit.
5% of $500k is $25k, and you havent factored in the legal cost, and other purchase cost.
Why so rush? imo i dont think the housing market is going to spike.
And paying for LMI is madness as all you are doing is giving the bank free insurance and giving permission for another company to come after you for costs if all goes badly on the loan (basically hiring a hitman on yourself!)
Yep definitely do everything possible to avoid LMI!
Scomo's 5% deposit LMI exempted for 1st home buyer,
and FHB stamp duty exemption + grant if any
Has this actually been pushed through? Last I read it was 1-2 years away?
LMI is one of the biggest rackets in australia, avoid at all costs.
So if you were loaning $600K to someone you didn't know, you wouldn't want any insurance in case things go belly up for this person you're lending to? In that's the case, can I borrow $600K from you please?
Banks have a system in place that allows them to tell if you have the capability to repay a loan, by forcing you to take LMI they are basically removing all risk associated for the loan from themselves and putting it on you the borrower, for the bank it is basically free money with 0 risk. A personal loan does not require LMI, you are comparing 2 totally different things.
LMI basically protects the banks from a downturn in the economy, where alot of people cannot repay their loan at the same time. In my opinion it is very predatory.
Take up the government's 5% deposit offer and they will cover the LMI for you
See LMI comment above tho
The 20% minimum suggestion seems wise.
You certainly should take into consideration the permanency of your income source.
Perhaps add some more info regarding how you plan on paying off the other 95% (of you only have 5%. Ie. Have you and partner got good jobs and very good long term job security, or maybe you are getting fluctuating income from a small business etc.
Try to plan for if things don't go to plan. That's I guess where the >20% deposit should allow some greater flexibility in payment plan, of for some unforeseen circumstances you might not be able to make payments for a while.
Also you should take into consideration rent (of you are paying any?) . If you have some family or something where you have free accommodation, this type of info would help otherd here give more meaningful advice for your specific situation.
A small deposit like that seems very risky to me. If the value of the property decreases, and for some reason you are forced to sell, it would be a very ugly outcome. I would take the advice from your brother.
20%. LMI sucks ass.
Plus it's good to have an extra thousand or so to cover conveyancer fees, moving, cleaners for your current place if renting, etc. And with an apartment comes all the fun of strata fees.
If I remember, at $650k you'll get reduced stamp duty but not fully waived, so there's another cost.
Really, aim for 20% and then be prepared to have a few quiet weekends until you're settled in. And always pay more than the minimum on your loan.
Your $15-25k will only really cover the various transaction costs, pending what government discounts/rebates you might be entitled to. Therefore, your deposit is effectively zero. You'll struggle to find a deal at all in this situation.
As ever, speak to a mortgage broker who'll be able to go through this is much more detail than we can here, but the probabilities are you'll need a substantial deposit … much more in the 20% range than where you are now.
Don't give up! On average, it now takes first home buyers almost 10 years to save for their deposit. Start early and stay focussed because you sure as heck don't want it to be any longer than that!
If a full time employee only saves 12.5k a year (in the housing market) to save 125k deposit - they need to monitor their spending habit.
But…but smashed avo…
$25k will give you a $250k loan at most.
Would you lend someone $500k with only 5% skin in the game?
Repayments on $500k will be $2500/month and you'll need to factor in mortgage insurance as well (<20%LVR). Can you afford that plus utilities, rates, maintenance, body corporate, etc?
For $250k you'll get something in Queaenbeyan or one of the regional areas. Maybe something on the outskirts of the city.
I don't think you've been researching at all - certainly not on what it costs.
I earn about $5k a month right now, but can definitely bump that a little higher if I go back to contracting on the weekends (software development gigs always coming up in my field). Still not 100% sure whether I would move in right away or leave place on rent for about a year. Both are realistic options.
I have some close friends in the banking and broker trades who can certainly help me out with getting set up. But yea I'm starting to see that bumping deposit up to at least 20% might be wiser, certainly feasible by end of year for me..
Or start out with a cheaper entry level investment property out in the regions. The capital gain is generally non-existant and they are hard to re-sell but the rental returns are usually pretty good. Look somewhere that is a growth centre (Coastal or switched-on western) or with a high transient population - university towns, military bases, towns that are isolated like Broken Hill.
Alternatively, can you go halves with your brother or another trusted family member?
NB: IMO, you are better off trying to buy something with land rather than an apartment.
Or postpone property and start a diversified share portfolio including ETFs investing in overseas markets.
Definitely start doing extra paid work if available. From 22-30 I used to do 50-55hrs over 6 days in the workshop plus a cash job or 2 every month and 4 hours night school per week plus assignment time (I'm not sure how I did it).
Cut back on all your expenditure, put in the hard yards. It's worth it in the end. Have a look at the FIRE (Financially Independant, Retire Early) movement videos on Youtube - you might get some good ideas. Property ownership isn't everything.
Thanks for your insight man! I'm definitely set on buying an apartment. I've never even thought about what it'll be worth in the future or whether it'll set me up financially down the track. I really don't care tbh. For me it's a place to call home and I'm happy to pay my life away for that privilege. On top of that, I've always loved living in small, convenient places and a house is way more than I can afford or maintain anyway.
My brother has agreed to help me since I helped him renovate his first investment property. The only issue is that he still hasn't sold it since the market is crappy so until he sells he doesn't have the money to give me.
Unless you have 20% and can cover the entry fees (body corporate etc) you will find it difficult, not impossible to get a loan. As someone who has recently went through the process a broker will do as much as possible, but the new lending agreements in place are strict. For example if you are actively paying off HECS that is classed as a debt, afterpay and zip pay will be seen as regular payments you need to make and similar with credit cards limits.
Also look at the bigger picture, perhaps owner occupying isn’t the best investment - will this be a long term housing solution or will you have to manage it as an investment property or sell.
If you are 2+ years away from having 20% is it better to cop LMI then pay 2 years of rent which would be more?
Hi SlavOz
Mortgage broker here, I have just run a funding position calculator for you. The data below shows the minimum requirements you would need for a purchase price of $500,000.
Purchase Price: $500,000
Loan Requested: $470,000
Savings: $31,000
LVR: 94%
LVR (Inclusive Of LMI): 96.82
LMI: $12,438 (NSW)
Ps. The LMI can be added on to your loan amount and does not have to be paid outright.
Feel free to reply if you have any other questions.
Best Regards,
Nick
Thanks so much for that Nick! Really helpful. LMI doesn't seem that bad but it's obviously still better to avoid it.
Not a problem, any other scenarios feel free to run them passed me!
My 2cents is just save a bit more if you're looking at that price range. Cause top end of that price range you're not even meeting the 5% deposit.