I have been saving up for a house deposit, because I want to get my own house built, and stop renting.
I live in a cheap area, where I can get a decent block in town for $100K
So,
Can I buy with a small deposit, of less than 10K?
Should I get a house and land package?
How do I go about organising the whole thing?
Should I talk to a mortgage broker?
Will they be more willing to accept me if i tell them I plan on renting out the spare rooms?
Would my income of about 3K per month be sufficient for a roughly 400-500K total cost?
Would I have to start paying mortgage as soon as construction starts? Or can it be deferred until I can actually move in and stop renting?
Any other advice, or a general run-down of the process?
Thanks!
How to Buy a House?
nuttapillar on 18/03/2022 - 13:10
Comments
Don't try and make a helpful comment for discussion. Ozbargainers aren't trying to be helpful.
It you're starting out, it might be helpful to start understanding how finance works.
A financier needs to find it worth lending to you, after considering how risky you are, and at the same time be able to comply with all the government regulations.
Big thing is income - which is not just the amount, but also profession, industry, type and stability of work. You need to be able to show that you have had consistent income, that is not likely to change.
Then they'll assess your liabilities - all your other loans will be taken into account. Your credit cards will be assumed to be maxed out. They'll consider your living expenses - which needs to be a reasonable and justifiable.
Then they'll see if you can service the loan - make repayments of interest + principle. This will be based on an interest rate that is higher than what they are offering you (as buffer).
Unless you are in a desirable profession of work, usually a 20% deposit will be required (minimise bank risk if property prices drop).
Unless you are buying an investment property, then whether you 'might' rent out a room is irrelevant.
If you're buying a home, you should remember to have 5% on top of purchase price for entry costs.
You can always talk to mortgage brokers and banks - you'll get a feel real quick where you stand.
Good on you for thinking ahead. You probably need to get more $ for a deposit.
You will need to pay interest as soon as settlement has been done, not til you finish construction. Construction costs are paid part by part depending on the contract. If you do not know any reputable builders at the moment I would stay clear of buying to build. A lot of them are going under, going grossly over budget, build time and estimates. Or at the very least allow A LOT MORE THAN than the 10-20% (standard) extras for a build. A 10-20% cost and time blowout allowance nowadays is very underestimated.
Having a deposit is not enough. Do you have ~6 months of income as emergency funds to tide you through in case you lose your job? Go to the bank, talk to a mortgage lender, they will tell you a more accurate figure of your borrowing ability.
I've had the same job for 3.5 years, with consistently growing income, and a very safe position. practically impossible to get fired.
Yeah? See how that works out for the SA Premier… lol
And hopefully Scomo
No offense, but 50k to 52k this year is too slow for your goals.
Can I buy with a small deposit, of less than 10K?
Technically, yes. But you'll end up paying for it. Google LMI.
Should I get a house and land package?
Up to you.
Should I talk to a mortgage broker?
I would suggest talking to someone. A mortgage broker may just try to sell you a mortgage. Talk to someone that has gone through this process, ask for advice. Any friends? Family? You'll learn a lot…
Would I have to start paying mortgage as soon as construction starts? Or can it be deferred until I can actually move in and stop renting?
Some banks may split the mortgage if you do home and land package: principal and interest on the land, interest only during construction for the house component. It depends on the bank.
Any other advice, or a general run-down of the process?
There's lots of info on the web, first result on google: https://www.bankwest.com.au/personal/home-buying/guides
Bank SA calculator says I can borrow $400K, Commbank says $393K,
I hope you're not including your projected rent from rooms in the house in that calculation, because no.
Except they assume 20% deposit, don't cover stamp duty, or LMI on smaller deposits, etc. You would need 20k+ alone for stamp duty, conveyancing, settlement etc.
No one is giving you a loan of that size with the $12k you have set aside for deposit, you are already in negative territory based on other costs and this would be assessed during your approval. Even if a lender was magically going to give you a 97% LVR loan with no LMI (which is also not happening).
Then why are you on a public forum asking????
www.housing.nsw.gov.au%2F__data%2Fassets%2Fpdf_file%2F0020%2…
For a $500k loan you will need at least 10% ($50k) deposit. $100k would be better.
Allow for non-build costs such as solicitors, other professional fees associated with the build, government fees/taxes, carpets, window coverings, furniture, removalists, etc.
There's plenty of info out there if you search
So you are either edicuated or smart enough to earn 3K per month yet asking us how to buy a house? or am I missing something?
So you are either edicuated
Lol
or am I missing something?
Yep, and adding something as well.
I'd say im reasonably smart, but my income is from a basic job. I just work the nights and weekends, and hours, and get a decent income for the profession.
And I haven't really done any research into house buying until now, so I'm out of the loop.well;
Step 1, Calculate your expenses per month then calculate your income per month, so you know your monthly savings (save this info, you needed for step five).
Step 2, User a mortgage calculator and reverse work out how much you can borrow based on the monthly repayment based on your monthly savings and which include your current savings. (I would add 2% more to the interest rate, since it will go up)
Step 3 From the amount you can borrow, deduct like 10-20% to cover the stamp duty, legal fee etc.
Step 4, Check the market (land + house or which ever combination), if you can't, go back to step 0: Get a better job.
Step 5, Talk to your bank or mortgage broker, in your case broker would be better.I have done much of that, since starting this post, and according to most calculators/sites, I can indeed afford it, despite everyone here telling me I can't. So I guess I will resort to talking to the bank.
@nuttapillar: Why didn't you came up with that conclusion in first place (talking to a bank), which confuses me :)
@boomramada: Well I wasn't even sure if i'd need to deal directly with a bank, or wether the building company could organise it instead, on my behalf.
@nuttapillar: Don't even bother talking with a building company about finance - they don't represent you or your interests.
Step 1. Don't bother asking the question on ozbargain. Few that comment actually want to help anyone.
Head into a major bank that you have your bank account with, they'll assess your situation and the BEST case scenario you get a pre-approved loan that is within your buying range, they will assess at least 2 of your payslips to prove you have income, outgoing debts, all of your current assets values, etc and youll know 100% if you can handle the repayments. Banks are risk assessment centres, no one on this forum can tell you if you can handle a mortgage, but the bank will as they can also see what you spend your money on/credit use. Also if you have collateral (e.g Parents house) it can assist LMI avoidance but thats something youll need to discuss with parents. The calculators youre using are estimates only, go into a bank branch and get a proper assessment if you truly want to know your accurate buying power.
Good on you.
As above:
- start saving.
- book an appointment with your bank or mortgage broker.The lender will want to see a history of saving before lending you some money.
Can I buy with a small deposit, of less than 10K?
Kinda, but its usually hard to do so, you'll need to find a bank/broker that specialises in low deposits plus be buying somewhere cheap. You may also have to combo it with something your state has like NSW having a "First home buyers grant" that can net you an extra $10k and having someone guarantee your loan or parents place you can use to put up against it. Be careful of other parts of costing as well though, like conveyancer will be $1.5k and you'll have fees for inspections or full bank applications. Put honestly, most places will tell you to come back with a bigger deposit.
Should I get a house and land package?
Its up to you, there's sooooo much pros and cons its best to research into it. But new typically nets you a grant BUT they're typically higher costs then old, the bank will only allow you to borrow up to what they value its WORTH so even if they let you borrow, its likely a bank will find a new places worth being more similar to an older place but you're buying at a new place price so your deposit has to pay the difference which you don't have too much of.
How do I go about organising the whole thing?
Talk to a few banks first, then a broker or two. Most brokers and bank will likley tell you to come back with a bigger deposit or look into options like either talk to a family member to increase your deposit, or make a plan to save until you have enough (they may be able to help you on that plan).
Should I talk to a mortgage broker?
You can as they may be able to come up with special ways that you can help achieve your goal.
Will they be more willing to accept me if i tell them I plan on renting out the spare rooms?
My understanding is no, banks won't take it into account.
Would my income of about 3K per month be sufficient for a roughly 400-500K total cost?
Can you discuss this a bit more, is that how much you have that can go towards the loan? Or is this how much you actually make after tax? Because dividing by 4 making it $750 a week, assuming after groceries, electricity etc etc you have 300 left a week if you're super stringent? You'll probably be borrowing a lot less (like $300k) and thats assuming no issues happen ever that you need to pay more money on in that time, and you have a safe job.
I also overestimated the cost in my area. (Murray Bridge) It's super cheap (in SA, country town), and I can get a new house and land package for $350K
Ah yeah, downvote me providing more accurate details… Seems legit.
Ozbargain is the new primary school.
super cheap (in SA, country town)
I can get a new house and land package for $350K
This makes it more possible IMO but the extra info helps a lot. First off in SA I think you have to pay stamp duty even as a first home buyer?, at $350k you'll need $13,840 just for that, so your $10k is just gone. But you could be able to get a grant for $15k from SA as your first property being a new home
https://www.revenuesa.sa.gov.au/taxpayer-stories/first-home-…
You'll have to speak with your bank or broker they'll tell you whether they think its in your budget or not. Especially if you talk to your own bank as they'll look at your history.
Be careful on what details you look into as well. For example you'll want to talk to a bank/broker in your town (Murray Bridge) the vast difference of country town vs city city ownerships is huge and I imagine a lender in the city wouldn't even talk to you if you told them you only had $10k while one in the town will actually see it could be quite possible if you saved up a bit more.
Okay so at that point you're looking at a deposit of $35k plus LMI plus costs. Can do?
350k for land and a house? It's hard to even build a house for 350k at the moment.
Have you looked at Rivergum homes? They have some good prices. And land here is super cheap. My coworker bought a block for 70K, and is getting a new house build, and she's on a very similar wage to me.
Yeah but always check your contract and inclusions. What is cheap may not be.
I am in the industry and it's hard to make a profit. Margins are around 8 to 20% at the moment.
Get a price rise every few weeks. Not a good time to build.
Some builder's a few months ago were asking between 40 to 100k extra to build their home.
Even after contracts were signed.
I see you are in Adelaide and I am going to assume you are young.
I think you should wait and save a bigger deposit. Try and save 20% of purchase price so that you can save on lender's mortgage insurance.
I think borrowing 500k with less than 10k deposit isn't a good idea. Although I am in Sydney and know that won't get you anywhere with less than 10k deposit.
You need to show your lender that you can save and have a steady income.
I'm going to assume you live at home and your living expenses are low for now.
Best would be to speak to a broker or your bank.Good Luck.
I'm outside of Adelaide, and only need to borrow around $350K
You're not ready yet. You don't even have 10% deposit.
Speak to a broker so you get a bit more advice.
You're welcome.I spoke to rivergum homes and bank SA after this post, and both said that the 15K grant will contribute to the deposit. So that, plus my 12K saved, is 27K.
I got a mortgage with my partner for 500k (we could have gotten more but didn't want to compromise our life). My partner (sole income) earns about 6-7k a month (after tax, hex), and we currently live relatively comfortably and can save.
If something were to happen and his income were to go down to 3k, we would be in mortgage stress because basically all that money would be going towards repayments, even if we lived ultra frugal (rationing/limiting toilet paper, eating baked beans everyday lol)
Bills are expensive - Council ($400+ per quarter), electricity, water, phone/internet, strata (if you pick a shared lot) + house maintenance (especially with our current 'fun' weather conditions).Don't let that discourage you though - go halves with gf/bf or sibling, or apply for a promotion/higher paying role - it's a good time to do that with the current labour shortages
The moment you suggest buying with someone else, I notice that the overwhelming feedback is to never do that :/
You're more likely to hear about the bad stories than the good ones - but true, there are a LOT of bad stories…
Yes absolutely true, people will complain and give negative feedback more than positive.
But still, hearing all the bad stories so much is frankly depressing. Had looked into it for a bit, then stopped.
$10k isn't nearly enough, stamp duty and LMI will be at least $20k, even on at $350k property.
If you buy a house and land package, you'll be paying your rent on top of the loan until you can move into the house so you need to factor that into your costs. Usually the banks want a higher deposit as well as the risks are higher (and you still pay LMI).
I'd aim for $50k minimum.
edit - Here's a good calculator for fees and such - https://www.westpac.com.au/personal-banking/home-loans/calcu… - they put it at $30k on a $350k house in SA.
have you factored in the inevitable interest rate rises in the next 1-5 years? not a question of if but when
That's arguable, but should always be a consideration irrespective of current market conditions.
If we go into recession, it will be hard for central banks to justify rate rises. I do think 1 or 2 will occur, probably 50 basis points max.
please see you bank mortage specialist on what you can /can't borrow.
This would be a starting guide on your budget.
TBH with building your own home. Prices for building have gone up alot ( 40-100K) over the pass 12 months for pretty much all builders in Victoria. Would assume it be the same case in SA.
Let's say:
10% deposit = 35K
Stamp duty = 0 depending on eligibility as you might be exempt for first home.
LMI = 23k roughly.
Living expenses while you build and make repayments before you can actually move in or rent out rooms!?Like I said, you are not ready yet.
I spoke with Rivergum Homes on the phone, and he asked me all the details, and reckons I can indeed afford a $360K home.
Why do people downvote comments that are purely providing more information that is 100% correct?
reckons I can indeed afford a $360K home.
I didn't neg you btw.
but those the neg you also reckons you should get a neg… can you not see the correlation?
A developer will can have an opinion, at the end of the day, you'll be the one holding the bag when something goes wrong.
You contacted a builder and not a lender first. That's why.
it's like going to a barber and asking if i need a haircut.
Well the builder said they have a large list of lenders they use, and after reviewing my details, said that at leasta few of them would be likely to accept.
@nuttapillar: why not arrange an appointment with your bank your currently with?
if you go thru their lenders it would mean that your stuck with that builder. You don't even have land yet. Unless its a house and land package.
@nuttapillar: Sure the builder might be happy to build for you but you don't even own land to build on yet lol
@nuttapillar: @nuttapillar at this point think of the builder the same way you would a used car sales person. They have a vested interest in getting you into a contract. They probably have a list of third tier lenders that may consider your application. But that doesn't mean you should and can afford it.
If you have done calculations; based on the info you've given I'd consider purchasing the land with the deposit you have and continuing to save to build. Obviously you will need to rent whilst you do this.
But good on you for trying to work out how to do this.
I believe they are downvoting because you aren't talking to a bank or a mortgage broker.
Talk to a broker or a bank and go through the process.
If you want to proceed with the home loan offer then get pre-approval.
Go and start making the purchase and then go back to bank for the full detailed loan application.
Be prepared for lots of extra costs along the way - stamp duty, lenders mortgage insurance, lots of fees.
Probably because you are relying on the information from some random who wants to sell you something. Instead of posting random tidbits from people who don't matter, go see a broker or a bank. You are just wasting your time doing anything else.
Because they're bored, petty and lonely.
How much deposit will you need for that? And do you have that deposit amount?
The guy has less than 10k as stated in his first post. Needs 360k all up apparently.
I actually have about 12K, but in that part of the post, I was wondering if i can get one under $10k
@nuttapillar: $12k savings was the starting point to think about purchasing a house in 1993.
It's 2022 OP.
Talk to a bank or broker first, get preapproval, then talk to a builder. Once they find out exactly how much you can borrow, they probably won't be able to do anything for you.
Remember they want to sell to you,
I couldn't get a 300k loan on a higher salary than that 5 years ago.
You must eat too much. OP is very frugal and possibly underweight.
accurate. I have actually been underweight haha. 2 meals a day and lots of work will do that.
sadly it won't matter how frugal you tell them you are. The banks have minimum costs of living they apply to applicants now (probably as many lied their arses off to get there costs of living low enough to be able to get the loan approved).
@gromit: ^^^
Despite being frugal (OzB afterall), if what you report is low, they just use their base figures for their calculations.
Have a chat with Homestart
Yes, HomestartSA offer some ways around LMI.
That said, just because someone offers you a loan, doesn't mean you should accept it. (sigh).
Yep I got a loan with Homestart with 50k deposit working casually 3 days a week. It can be done.
That's just showing you can get a loan with them, look to refinance after a few years.
$100k for a block!? Where do you live?!?!
Murray Bridge is about 75km from Adelaide.
If you work "local" yeh, maybe…
How much is Petrol now, $2.22 or more.
Nuh.
Yeah I work 7 minutes from home haha.
Can I buy with a small deposit, of less than 10K?
- As a general rule of thumb, try to aim for 20% of the total cost of the property (land and building value). Maybe even a few percent higher to include closing costs. But yes, it is possible to buy with even 15% and 10%.Should I get a house and land package?
- As an investor myself, I would say no. I usually stay away from such types of properties.How do I go about organising the whole thing?
- Start by going to speak to a mortgage broker.Should I talk to a mortgage broker?
- Yes, they will provide you with step 1 of this journey and will let you know how much you can borrow.Will they be more willing to accept me if i tell them I plan on renting out the spare rooms?
- Depends. If you are buying the house as an investment property, yes, they can add a rental income in your servicing. This is usually 80% of the rent. Maybe less depending on the area. No, they will not add the rent if you are just buying the house for yourself even if you plan to rent out the spare rooms.Would my income of about 3K per month be sufficient for a roughly 400-500K total cost?
- Talk to the broker. You mention that it is 3200-3500 after tax? Good job on getting that and working hard at it. That's a good starting income. Guessing you make about $50k before tax? You can use online calculators but they are not fully accurate and only provide a some estimates. There are a lot of other things to consider. Your broker will be able to do a more detailed calculation.Would I have to start paying mortgage as soon as construction starts? Or can it be deferred until I can actually move in and stop renting?
- If you really do go down the road of buying a land and building a house, yes you will have to start paying the mortgage as soon as construction starts. But, this is an interest only payment and will only be on the amount borrowed at that time. Usually when you build, your bank will release money to the builder in stages. You pay interest only payments for that amount until the house is finished. Your broker will explain more.Any other advice, or a general run-down of the process?
- Go speak to a broker and feel free to act dumb. It's part of their job to explain and walk you through the process. If you cannot borrow enough money, go ask them how much income do you need. Then go work your butt off and get to that level.Thank you for the helpful response
one question. has there been good rain in murray bridge the last couple of years?
if the farms are doing well the local economy might be booming currently. will your employment prospects be equally good after a year or two of drought? when was the last drought?
Rainfall has been probably average, maybe a bit below. But I work for a large chain (Hungry Jack's), and the store has been open for like 8 years. The city has always been gradually growing, pretty much never shrinking. And now it's growing at near record rates. Our store will always need at least a couple night shift workers, since it's franchised by OTR and the site is 24/7. We've been shortstaffed for ages now, and good, reliable overnight workers are hard to come by. Hearly everyone that tried it hates it, and goes back to day shifts. I'm considered to be quite good at my job, so unless I start stealing shit or assaulting customers, then it's pretty safe. They would be shooting themselves in the foot if they got rid of me. One of my fellow overnight workers doesnt even want to do night shifts, but is stuck there cause we cant find anyone to replace them. And even if i'm nolonger needed on night shifts for whatever reason, we always need more reliable day staff too. plenty of work to go around. They're always asking me to cover shifts on my weekends, cause there's always people calling in sick or not showing up. I could easily pick up even more shifts if I wanted. I've even been covering shifts in the nearby Mount Barker store, as they need me there sometimes too. Night workers are highly valued.
You don't have to buy a house, you can rent and invest the difference between the rent and a mortgage into other investments. Though at least with a mortgage you are forced to pay it off, if you were to otherwise keep buying other investments each pay then you might be tempted to waste the money instead. There are certain freedoms that come with renting that you don't get with owner occupying. Like the ability to move whenever you want, no need to lose sleep over the condition of a property you live in, not spending years just to pay off the interest on your loan alone.
So many house in Toy for Us or Myer, less then $100 each, 10k can buy quite some..
Or Lego. Owner/Builder.
Owner build in Minecraft. Its virtually free.
How to Buy a House?
Direct transfer or Bank Cheque.
Unsure if it's covered here specifically but given OP is a little unsure on take home pay they may not be working a regular full-time PAYG job either which could add extra challenge.
You would want to be clearing $5000 to $6000 a month to take on that level of debt
Taking living in qld as an example
With around 3500 per week wages ( after tax),you should be able to borrow 300k( owner occupied)
Home and land packages will cost around 350 to 400k( 4x2x2 )
So you will need to come up with 30k for deposit and fees(if 25k fhbg still available)Better to talk to a banker or broker to calculate your borrowing power
So it's 'Do-able'
Seeing as you like to do things in reverse order, perhaps you might like to lock in your first tenant
if you're in an area with land value of 100k, you could probably find something outright for about 400k, so its not entirely impossible.
Wouldn't go for new build personally, cost of construction's been rocketing recently especially in rural areas where you can't get labor or logistic, it's often cheaper to buy old houses. and it takes 1 year for of nervous waiting and interest rate moving.
Don't take offends but 3k monthly take home is on the minimum wage level, and your borrowing power is most likely 300k, maybe high 300s if the banks are feeling generous. You'd probably want to save at least 50k cash before thinking about it to have some wiggle room. On the bright side, village values will take decades to move.
Unfortunately, my town is starting to grow quickly, and I think prices will rise quickly. In fact I think they have already risen a fair bit. I'm hoping to beat the main price rise. The value could grow quickly, which could be good if i get in quick enough.
If you are buying a property because it potentially will increase in value, then you have the wrong priorities.
Rem buying and building is generally riskier…at the end of the 12monyhs if your house price drops the bank may refuse to provide you with the rest of the loan
Borrowing 7+x your income. This will end well.
You’re going to have a find a dodgy lender to get the money. A bank is not going to touch you.
The savings you have will be swallowed up in fees.
Might start for a smaller unit worth $170-220k as your first step.
The lenders don’t care about renting rooms out either.
How to buy a house?
First talk to a mortgage broker, explain your financial situation and find out roughly your borrowing capacity.
If you are single and about 3k per month salary as you say, you will have really low figure in which you may need a much larger deposit or guarantor.
Then look into the market to get an idea what you can afford with that budget.
Good luck.
he doesn't have the income for a small loan + rent.