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
Hey nuttapilla, please go to your local library and borrow a book on buying / investing in property.
While it's great to receive all the help and advice on ozbargain on buying property, it's such a scatter gun approach and everyone gives advice informed by their own biases and blind spots. If you're thinking about entering into a 6 figure transaction, it's great to thoroughly do your research and learn about the costs, pitfalls and traps through reading about them before you buy a property, rather than learning about them when they happen to you.
I'd recommend even go so far as reading 2 or 3 different books, to get different perspectives. A few hours reading a few books could save you tens of thousands of dollars in mistakes. Educating yourself about the ins and outs of property investment before you take the plunge, will be the best return on investment you could make.
Do not do house and land package. Have you actually budgeted?
In your circumstances, go see a broker. Find out your true borrowing capacity and see about what else you need to pay once you settle.
In your circumstances, do not go house and land package.So when you say to avoid house and land packages, are you suggesting instead to buy the land, and then get the house separately, both on separate loans?
Don't build right now. With high demand all the builders are rip off merchants capitalising on quick money. They don't have to build quality to get work and just walk of sites they couldn't be bothered with. Waiting for demand to drop will weed out the bad builders.
House and land packages complicate things with 'unforeseen' extra costs and construction delays.
This adds extra risk which is not something you can afford on your low income. Even a $10k 'surprise' could be disastrous for you.
There is news of builders going bankrupt or doing a terrible build regularly in the press.
My understanding is they are 2 separate loans.
Loan for the land - e.g Deposit and settle June 2022, you are paying the land already.
Loan to build the house - e.g you own the land, you have to find a builder to build. There are a lot of considerations. Your land size, frontage, what can fit, the exterior facade, alterations, interior, packages. It is exciting but there are other costs associated.
e.g some builders do not cover the fence and pave the driveways and make the front look pretty - that will cost another 5-10k depending on the size of land.
You gotta look for turn keys options and see what is included, the quality of the products they use. You have to be on top of things as sometimes they may take you for a ride followed by the cleaners.So yah, avoid if you wish.
That's a lot of debt for a small income. If it is your dream to do this, you can make it happen though. Not the first person to do it, not the last.
This is how I would approach this:
-find a second income stream. Über, 5er, eBay, reselling on gumtree or garage sales or even better a steady second income that the banks can see. Work extra hours at your current job.
- do this for 3 months and save every penny.
Like NO take outs. No weekend outings that are not free. NO ALCOHOL. No takeaway coffee. No memberships of any kind..no movies. Bear with me, this is only temporary to save up the deposit FAST. Spend less than $80 on food every week (get a copy from the library the$50 shop and learn how to cook on the cheap). Go through absolutely everything you own and don't need anymore and try to resell (this is hard, chances are what you don't want others also don't want to buy anymore but the dollars add up fast anyway with the advantage that you don't have to move stuff you don't want anymore into the new house). Be thrifty, join the local library for movies/ books and check out free events from your council. Are you renting? Would you consider moving in with your parents while building a house?
To save money?
- this will ramp up a deposit fast, we are aiming for $10,000 in 3 months so yes, you will have to work a lot of extra hours.
- with this saved money and expenses sheets/ bank statements for to a mortgage broker and get advice.
- buy land pending finance… Likely you will have to cut down to the absolute minimum while you are building as well. I think it's a smart strategy to rent out rooms, however… Have an honest look at yourself. Would people actually want to share a space with you? Would they pay money because your are very tidy, keep noise to a minimum, have nice furniture in the shared areas, don't smoke etc - you would have to treat this like ANOTHER job (including your full time job, the second income stream) to ask premium prices/ make your place attractive to possible tenants. if you don't ask premium prices, chances are good that your rooms will be filled up with people that won't look after your house.
So the takeaway is, start saving money today. Get a second job. Get a third job, I am serious! Then go to the banks. Do this now will you are young, and reap the rewards later in life.
Keep in mind the cost of building a house has exploded, however I think you are on to something to get a foot into the property market now while you don't have dependents. That's smart. Good luck, would love to hear how much you were able to save up in 3 months! Please keep us updated
I'm 24 and want kids by the time im 30, and I want to be very stable, with my own house etc before kids happen. Anyway, I can pick up more shifts if I want. my work place is always looking for people to cover shifts. Last week I did some extra shifts, and ended up with $1470 for one week, which was nice. And a couple of them were covering in another store, and I get travel allowance. So if I do more of that, it should be pretty easy. I don't drink much alcohol, but I do have an extensive collection that I bought thanks to deals posted on here haha. So that will last me years. I'm very frugal anyway, and I usually aim for under $3 per meal, so I doubt I spend more than $80 per week on food anyway. And I never buy takeaway coffee. My work roster has been a bit too inconsistent, and im usually nocturnal, due to night shifts, so a second job is unlikely, and impractical.
And I already have a couple housemates now, who dont mind living with me. There is strong demand for rent in this town, so it will be easy to find people to rent my rooms. There's actually a shortage here. population is growing faster than the housing availability.Why not just find a baby daddy with a house?
Buy the lot!
Buy the cheapest toilet and 4 glass panels around.
Wait for all properties around to drop to half price.
Buy them all and re-sell them for 3-4 times the value.Then move to Melbourne …….
OP is asking the right questions though. OP should get commended for that.
OP, will be a bit of learning. If it was easy, it wouldn't be fun, but you should keep on trying. Will need to increase that income. Avoid buy now pay later and having massive credit card debt, or any at all.
I've never used a credit card.
Nothing wrong with a credit card, if you use it correctly and pay it off every month. It can even be used to raise a credit score. Just make sure its paid off and the account closed before you go for a decent sized loan.
Absolutely, I end up saving so much with a credit card. Just pay within the 55 day period and it's a interest free card with point accumulation. It actually looks good on my credit file as the banks can see I have been making payments for the past 10 years.
Hi OP. Don't bother asking the question on ozbargain. Few that comment actually want to help anyone. Just bag and bully imo. Too much clicky bs and people treating others like sh$t. If you could post anonymously or up votes and negs were removed as a feature then you might get a more reasonable response from the keyboard warriors that are just being di$ks. For all of you being smartarse and just shit$y people, this is a person that is asking for guidance on a financial matter after being honest enough to share their income, which is obviously less than yours. Does anyone remember what ozb used to be because this bs is just tiring. Anyway OP Goodluck on trying to own your own house and land and improving your financial position, all i can say is check with lenders and consider starting smaller if you don't have financial support you can draw from elsewhere (family).
didn't read the whole thread, but if you buy a block of land and/or build a home, you cannot claim any tax deductions like you can for investment property
which is why many start out buying investment property to rent out, then after a few years when their equity is increased, you can start to draw on some of that towards buying a home for yourself.
similarly buying land I don't expect you would get the FHOG
wel i have spoken to house builder and bank, and both said I will get the grant, even after I said I want to get land and build a new house. I think it's a bit more felxible and available in SA.
https://www.commbank.com.au/digital/home-loans/calculator/ho…
This should give you a rough guide on what you can borrow. Although, smaller banks tend to let you borrow more from when I was going through it all.
home+land (building to start) packages arent always cracked up to be, so talk to people you know who have gone through it.
Talk to a few home owners about on going costs, bills, etc. Create a complete budget of spending vs income.Worse thing is not being fully prepared for something this big.
Hi OP, good on you for starting to ask questions.
A lot of good responses in the thread.
The borrowing power calculator usually overestimates the max loan amount.
Maybe because they do not apply the mandatory minimum expenses amount that different lenders use internally or maybe it’s to get people to call in.Personally I would increase my deposit but people’s situations differ.
Also asking seller/developer/RE for loan advice is a rookie mistake. They don’t have your interest in mind.
Even mortgage brokers work for commissions but they are a good place to get information applicable to your area. Then when it comes time to choose a lender, I recommend you look into the home loan offers threads in ozb or whirlpool in case some of those lenders offer services in your region.
Hi Op,
First, I would strongly advise you to speak to multiple mortgage brokers to find out how much you can borrow. Different brokers have access to different lenders and each have their own risk profile and lending requirements. Some lenders specialise in high risk/low doc home loans, while some bank lenders prefer lower risk and higher income borrowers. This is why you need to speak to multiple brokers.
Second, I would strongly advise against a house and land package, as they require construction loans.
You will start paying mortgage repayments straight away for the land purchase, and the repayments will increase as the construction loan start paying the builder. During the 2+ years while your house is being built, you will be paying a mortgage on a house you cant live in and also paying RENT for a place to live.There is also significant build risk in this current environment with higher labour cost, higher material cost and supply chain disruptions causing material shortages. Multiple high profile builders have collapsed and more will follow.
Since you are on a stable income with no kids to support, the most optimal strategy would be to purchase an existing house in a suburb with good rental demand, live in it and lease out the additional rooms immediately for extra income. Get a good tax accountant who will help you structure your finances and income to minimise your tax outgoings.
Surely it's possible to defer the mortage payments until construction is complete? I've heard that it's a thing.
The good thing about rental demand, is that my entire town has high demand for rentals. too many people looking, and not enough places available, which could work in my favour.Some lenders will allow you to just pay interest while the house is being built. But that increases the remaining monthly payments when the house is built because its still a large amount over a 29 year loan instead of 30.
Correct, depending on the mortgage package from the vendor they may allow or have a deferral option as a feature of the loan, either way, deferring repayment will just increase your total cost of ownership.
Do you realise that renting rooms out has several implications?
Tax - You'll be liable for income tax on the rent and capital gains tax on the portion of property that was rented when selling the property.
Insurance - Normal insurance doesn't cover boarders.
Council - Usually once you have 4 or more unrelated adults living together it is classed as a boarding house and needs to brought upto code (fire exits, alarms etc.)
Yes, which is why the advice is to speak to a broker and a tax accountant.
tax - Again, the advice is to see a tax accountant. Boarding income are non-taxable and do not trigger CGT. Again, personal circumstances and tax structures matter here. See the damn accountant. It will save you money. Disclosure, I own an accounting firm, I am biased, but it does not take away the validity of that advice.
Insurance - landlord insurance is available in all states, but the best insurance is to vet your boarders throughly.
Council - given OPs budget (or lack thereof) I would estimate he could afford a 3 bedder and taking on 2 boarders would not classify his house as a boarding house.
Boarding only includes family members where it is shown they are simply paying cost of living, rather than the room.
Hi Filmer,
See ATO Income Tax Ruling 2167 paragraph 17
boarder income that is non-taxable can be from
- relative/family member(s)
- student(s)
- anyone else as long as it's a non-commercial arms length rent
If you only have $10k, unless you can qualify for any Govt schemes, you may or may not even be able to afford just buying the land. You most certainly won't be able to afford to build a house on it. Construction costs are also rapidly rising at the moment. Doubt you could even build a decent 4 bedder for $300k these days.
https://rivergumhomes.com.au/designs/home-designs/sa?layout=…
According to rivergum homes, you can do it for under $200KRemember a lot of prices on builders websites are for the house alone, doesn't include a lot of items such as flooring, sometimes even simple stuff like flysreens on windows or the entry to the house, just dirt then a front door. No curtains, no appliance, no air con and also no landscaping, so just more dirt. You have to talk to them to find the real price.
As ghost05 says you need to take those prices with a healthy dose of reality. They don't include site prep, planning approvals surveys, engineering etc (outlined in their terms)There will be considerable costs on top.
Op, you'll definitely need someone else to co-sign and a much larger deposit.
With $10k deposit and $3k per month income, you haven't got a chance in getting a loan.
Not sure why these questions are even asked. Just go to a bank and try to get a pre-approval. It will serve as a litmus test for your financial capacity, and show you exactly how much banks are willing to lend to you.
Troll post?
OP seems to be responding and adding justification and enquiring about possibilities.
Most probably just doesn't grasp the situation fully yet, and is optimistic.
troll comment?
Talk to a broker. He may give you a way. They don’t normally charge. All the best.
Good way to get into house mortgage stress
op buy a lot and put one of those ready to go Chinese office trailer things that come pre built and they open them up on concrete footings in 1 day. i think it would cost like 50-70k for that and its registered as a trailer so no need for permits, thats your best bet.
Hi OP, I think you're getting a lot of negative comments, saying how obvious it is but not many justifications.
Hope you dont mind if i break things down for you.So, if I understand correctly, these are the numbers you've given:
$350k house+land / $42k salary after taxFirst hurdle: deposit.
20% deposit will be required to avoid LMI. Lenders generally won't lend even under 10%
Under the most optimistic scenario where you get the Government's First Home Loan Deposit Scheme, you'll still need 5% deposit minimum.
Unfortunately, your $10k won't even reach 3%.Second hurdle: associated costs
Some people have alluded to it - After settlement, you'll need to pay a bunch of costs to the State, to lawyers, to the bank.
The commbank calculator estimates total costs will be around $20k.
This will be on top of the deposit you already can't pay.Third hurdle: ongoing payments
Say somehow you can get a total of $37k from borrowing of family/friends to fund the 5% deposit and upfront costs, your next problem will be repayments.
I'm unsure how the FHLDS loan will work, but assuming it's just normal interest rates, this Commbank calculator estimates $1641 repayments a month. This only leaves you around $1850/mo to life on.
From this figure, subtract: house costs (insurance/water/rates/electricity/gas/internet). Car costs (petrol/car insurance/rego). Lifestyle costs (Health insurance/groceries/gym/clothing/eating out). Not to mention if you're building, you'll be paying rent while the house is being built too.
This is a personal thing for you. If you can skimp on costs and live within that, then fine.Bonus hurdle: emergency money
Being stretched so thin on the mortgage means you're stuffed in an emergency. Whether you lose your job, get into an accident, need to travel to see a relative. Do you know what you will you do when a sudden big cost comes your way?
So, for peace of mind, I'd say continue saving a deposit for a bit longer. The close you get to 20% of the house's value, the better.
Not to mention, the market seems to be cooling and home loan rates get cheaper with a larger deposit.Well I've got 12K saved, and I can quite easily save some more. I'd say I could get to 20K before the end of the year easily. I haven't been saving for long. And if I put my mind to it, I can do extra shifts, and overtime etc to get some more money coming in. Last week I did some extra hours and ended up with $1470. I've got 400+ hours of annual leave I could cash out for about 7-9K (although it'd get taxed I guess), but then I'll be getting a pretty decent tax return in july. Even without the annual leave, I think I'll be getting a nice return.
great that you have a savings plan/goals. think the comment was helping you make sure you bake in all costs into your plan.
deposit + transaction fees are mandatory (you can’t buy a house without incurring these costs). emergency funds are to reduce major risks (no point buying a house if you default on repayments or can’t afford to repair defects which damage the house e.g. roof leaks).
savings goal should be set as $X by Y date (baking in all costs above)
As you touched on, it might be into next year before you're ready to buy, but it sounds like you've got a good plan and that you're on the right path to reach your goal. Keep at it.
400+ hours of annual leave does also seem to indicate you haven't had a break in a some time. While cashing it out is nice, keep in mind you'll be taxed, lose the super benefits, service time, as well as any potential leave loading.
Leave is meant to be used so you can recharge - make sure you're looking after yourself too!Yeah I have only taken a couple days off, and not used my annual leave at all i think, in 3.5 years. But how does cashing it out affect super?
I do plan on taking time off eventually. I'll probably coincide some of it with a nice long clinical trial for another big payout. 2 pay streams at once haha.@nuttapillar: So it affects super in the sense that if you took leave, you get paid super. If you cash out your leave, there's no super paid.
Mate, I had a cold hard reality check about 5 years ago when I first began discussing similar amounts. I've increased both my deposit and doubled my wages and here I am, 5 years later with a failed application and I'm still trying!
I have a 45% deposit saved and I am on $1000+ per week take home pay. And I'm struggling to get a measely loan of $250k.
And believe me when I say I make my European migrant grandparents look like people who splashed their cash. I've been told by three lenders now that I'm the best saver they have ever seen. I save 95% of my wage and I'm still in this process….
(but fingers crossed…. I'm in application phase again, wish me luck!)
Don't let them tell you that you can't. You just need to save more money for now. The only way I knew how to save more was to spend less. And then find a lender who says yes when all the others knock you down. You can do this.
Something does not add up. You should be able to get 250K loan without much effort. Have you talked to a broker? Have you had some defaults on your credit file?
If you've saved 45% deposit in 5 years and you are struggling to get a loan then just keep saving until you get to 100%.
250k loan rejected on an assuming 75k+ salary and a 45% deposit, something doesn't sound right. But its the banks, they do whatever they want.
If he/she saved 100% for a home, I would try again with the banks. Buy my own home and buy an investment property and get the mortgage on both homes.
That's what I would do anyways.
I'm on 45k
Casual and self employed, and I don't work for 10 weeks out of the year. That's what makes me a 'risk'. No debt, none - not a single day of my life. No credit cards or lines of credit, ever.
Believe me, this is frustrating as all hell!
@CryssieJade: I feel you and in the same boat
I'm self employed too and I'm on roughly 70k a year, no debt, no credit card debt, no car debt. The loan I want is lower repayments than the rent I'm paying but apparently 5+ years of renting more than the loan amount repayments per week is not good enough evidence for me to pay the loan back.
I also have a 30% deposit too but banks think I'm still a risk.
Have you tried CommBank? Apparently they have loans for sole traders.
@hasher22: I'm with a broker now, so fingers crossed. I won't go to a bank again. We can do this, best of luck 😊
How is that even possible? What's their reason for rejecting you?
See below. I'm seen as a 'risk', even though I'm going to be choosing to pay double my repayments. If anyone could actually give me a loan, that is 😂😭
If you are on ~$1000/wk after tax, then your gross pay would be approx $70-75k depending on the tax table your work is using. And if your income is stable and you can demonstrate a history of employment then you definitely can qualify for more than $250k, I recommend you find and speak to a knowledgable broker.
I'm casual and self employed, so I don't actually work for about 10 weeks per year. It's the casual and self employed part that makes me 'a risk'
Never been in a single dollar of debt, not even a HECS loan.
However harsh, a lot of good suggestions on here. But I’ll just repeat the one that is most important IMO: go speak to a mortgage broker. Not just one, go speak to several as not all are the same quality.
All the best :)
Being in sa try home start
Where do you leave so you can get a land that cheap?
Country towns with pop less than 5k and about 200km from major centres. Nowhere near the beach.
I'm at murray bridge. 50mins from Adelaide/beach. My coworker got a plot for 70K. I'm only aiming for 100k because I want a larger block with backyard. Prices here are still kinda stuck in the past haha. But's it's a small city now, just under 20K pop, so has all the conveniences of the city, all the shops and services one might need, loads of jobs, and land is still cheap. Prime spot IMO. There's a fair bit of subdivision happening now and some new large businesses, and plenty of new jobs around. So I suspect things will pick up and prices will rise soon. I'm hoping to beat that.
I thought I'd share my story regarding buying a land and building with a little over $10K deposit. We signed a contract to purchase a lot not yet titled back 2016 December through a builder and the proposed cost was $340K (for land and the build). We went through a broker and he submitted the application that we could use the FHBG (first home buyer) that added extra $10K. The broker told us to keep saving until the land title, which didn't happen until April 2018. By then the land and house value have increased to $400K we didn't have to take up LMI.
When the slab was poured, we had to start paying a small portion of the house as well as the land. Every time each stage was completed, the bank had to make payments which added to the mortgage. This meant we had to have enough money to pay rent and X% of mortgage until it was ready to move in. My income when we applied was around $100K. The FHBG was pretty much spent on fees and taxes.
Once you move, you also want to have enough money for things like fencing, concrete around the house, curtains/blinds, NBN/Opticomm connection fee ($600), electricity meter installation (when commencing your build - $300 or so), rates and water need to be paid as soon as your land titlesJust want to say you are on the right track. Keep saving and investigate the homestart loans. Also talk to a broker.
Mortgage Broker here.
To answer your questions:Can I buy with a small deposit, of less than 10K? - yes this could be possible depending on how much you are purchasing for, there are several grants and government assistance schemes which could help here. Minimum deposit would be about 5% of the purchase price generally speaking.
Should I get a house and land package? - depends if that's what you want
How do I go about organising the whole thing? - can go direct to the bank or use a broker
Should I talk to a mortgage broker? - yes, brokers can look at multiple lenders of which many you may not have heard of before. No cost for using a broker
Will they be more willing to accept me if i tell them I plan on renting out the spare rooms? - generally no, bank will not accept any income from renting out spare rooms
Would my income of about 3K per month be sufficient for a roughly 400-500K total cost? - generally no. A guide to go off is 5 to 6 times your gross income (not including renting out rooms).
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? - You would need to start the mortgage on the first draw down if doing a construction loan, however, usually the bank allow you to go on interest only until the construction completes where it will revert to principle and interest.
Any other advice, or a general run-down of the process? - use a solicitor (not just a conveyancer). Banks calculators are all different and their policy regarding income usage will differ. You can get wildly different results from different banks based on the same information hence why you should use a broker. Lastly, never trust one source of information, myself included.Hope that helps.
What toxic place Ozbargain has become.
Op, talk to your bank or a broker through realestate com au.
Nobody here knows your situation for sure.
OP has done a pretty good job describing their situation.
Disagree about toxic comments, OP is receiving reasonable advice. Sure it's not positive but the reality is they will have trouble obtaining the loan (and possibly repaying it) for what they are after.
What toxic place Ozbargain has become.
How is it exactly toxic? And what do you mean by:
Nobody here knows your situation for sure.
OP is after a home loan. This isn't rocket science, it depends on income, expenses and the LVR. Any other factors (e.g. previous defaults, other debts, unstable income) can only work against you.
What "situation" exactly are you referring to? Your personal situation is broadly irrelevant. The fact that your dog recently died or that you're going to do XYZ has no bearing on the outcome.
Does OP have shares? Investments? Car? Other bills? Paying rent? Crypto? Etc etc
Just go find a good broker. That's how I learnt about it all.
Most posts are picking on how it's likely financially unlikely in the first place, but for the process overall a good mortgage broker will be happy to explain the general process of sorting out your capacity, then how to look for a place and move onto the actual buying or offering stages, then settlement crap.
The loan budgeting is the main thing but there's a whole lot more that you need to be aware of too. For instance with auctions you usually have gone for a pre-approval to know your limit, but you usually don't know exactly which place you'll get. The bank could have very different idea of what a place is worth and refuse you to lend the money, no matter what pre-approval they give. Then all those extra fees people have mentioned like solicitor/conveyancer, the cost of home insurance (required for most loans), etc.This is a fair bit down, so you might not see this. For reference, I work in finance, but in the corporate space, not retail, so take my advice as general advice from someone in the industry, but as always, you should seek tailored advice if you are not sure about something.
I have been saving up for a house deposit, because I want to get my own house built, and stop renting.
I see this a lot, but why? What exactly about renting is making you unhappy at the moment, and are you sure that you would be happier being a home owner? How will your day-to-day life change if you were to own the house you live in vs. renting? Have you considered all of the downsides of ownership - e.g. you now pay for all of the maintenance, you now face the risks if something breaks, a builder did a dodgy job, the hot water stops working…etc. You will also be responsible for paying a whole lot of taxes - stamp duty when you purchase, council rates. You lose the flexibility of being able to move easily - e.g. for family / work, let's say.
I live in a cheap area, where I can get a decent block in town for $100K
If you believe land value is going up, you could potentially purchase the block of land and worry about construction later (but definitely plan this out properly before you do this).
Can I buy with a small deposit, of less than 10K?
Less than $10K, basically no. You should put your money in an ETF instead if you just want to invest.
Should I get a house and land package?
It depends - you should be aware of the risks of purchasing off the plan. You are purchasing something that does not yet exist, that you cannot see, and when purchasing off the plan, you are the one who absorbs all of the risks from the developer. If house prices go down, you will have to still pay the contracted price, despite maybe the thing not even being built yet…etc.
Yes, purchasing off the plan can potentially be cheaper, but it is cheaper because developers discount them to offload large amounts of risk and diversify their portfolio.
How do I go about organising the whole thing?
You should have a deep think about whether you want to actually own a house (particularly with your income) and whether that actually makes financial sense for you.
Let me give you an example - your hot water tank or heater or AC unit breaks and you need to have a new one installed. That will be a months' worth of salary for you - do you have the money on hand to deal with these problems? I'm not saying home ownership is not for you, but when you're already teetering on the edge, you do not want to commit yourself to even more risks.
Should I talk to a mortgage broker?
Sure, but they have a vested interest in selling you a loan, so keep that in mind when talking to them.
Will they be more willing to accept me if i tell them I plan on renting out the spare rooms?
No, unless you treat it as an investment and have a lease contract with a proper tenant.
Would my income of about 3K per month be sufficient for a roughly 400-500K total cost?
No.
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?
As soon as settlement (i.e. the property is yours). Whether you can move in or whether it is still under construction is irrelevant.
Any other advice, or a general run-down of the process?
See above. If I were in your situation, I would not purchase a house.
There should be an affordable unit that would be a starter for you, so you are not spending dead money on rent
2016 the wife and I bought a home for 480k with a granny flat, our max capacity from 3 banks was 550k. I was on a very low wage at the time. Near 50k she was on 60k.
We had about 70k worth of savings, yet couldn't get more than 550k.
Interest rates were higher 4% but lending is tighter now.
Fast forward to 2022, we are renting it out the granny more than our mortgage repayments. About 20k a year.
I don't think you have a chance of securing a loan of that amount by yourself.
Is there much of a market renting out rooms where you are?
I suggest building a granny flat at the rear of the property, rent that out then when you have enough deposit and income build your home. Subject to council rules and all.
Or live it in for awhile.
100k for the land, 140k for the granny flat.
How much could you rent it out per week in your area?
You have 6.5 years of builder's warranty do if anything breaks they fix it.
There are plenty of calculators online to determine your borrowing capacity too.
There is very high rental demand here, so getting tenants would be easy.
Yes someone in my area knocked down their garage and built a granny flat next to the house. But it looks and acts like a smaller townhose, and they are clean, compact. modern and cheaper to build.
For the love of everything holy - DO NOT BUY
I have 20%+ for places $700k and up - I'm still not pulling the trigger because between the amount I can borrow and what I have is still $100K more.
Added to that is the fact the interest rates will go up. Everyone who bought 2 years ago will be rolled once their fixed rate ends.
The house/apartment packages sound amazing - $10K and it's yours. But, trust me when I say that is pocket change compared to the legal battle you'll have when the builder jacks the price due to "delays". I wailed at not being able to do one back in 2020 - It still hasn't been built (not even the foundation poured the last time I drove past it) even though they told me it'd be done in "late 2021".
I'm not saying it'll be the same for everywhere but, there are too many cases where that is true.
For those wondering wbout the cheap land, here are some examples of what I'm looking at: https://www.realestate.com.au/property-residential+land-sa-m…
https://www.realestate.com.au/property-residential+land-sa-m…
And some examples of houses I want to build: https://rivergumhomes.com.au/designs/home-designs/sa?layout=…
So I could quite easily get it to a max of 300K, maybe even less.That sloping block might be cheap but you will probably get a nasty surprise when it comes to site costs from the builder
good pick - yeah - if this is an example of a neighbouring house - https://goo.gl/maps/sxSvrrTBzG8GN9KE6 - then I'd put the sloping block in the category of 'what could possibly go wrong'
uh - maybe - everything - soil slippage, subsidence, water erosion, excavation costs, building cracks, failure of retaining walls, huge repairs costs for earthmoving in the future
and if the rear aspect is sloping down to the south-west - is like Sydney where the hottest sun comes from in mid-summer, and where the coldest winds come from in winter - then that could be just about the worst aspect you could pick
YMMV - check prevailing winds - yeah I'm guessing mostly from the southwest in winter there … https://weatherspark.com/y/143778/Average-Weather-in-Murray-…
as for the Melaleuca Way - looks about 1km from the Murray River - guessing flat land - how often has it flooded there ? Any chance of a 1 in 500 year flood - like other places have had a few times recently ?
If any chance of flooding, flood insurance could be unaffordable, and if you don't have it, then when it floods and you lose everything - government may not come to your aid …
DW, I won't go for the sloping block. The flat block is pretty safe. I don't think we'd get floods big enough to reach up there any more. Too many cotton farmers siphoning it off.
Yep, cut fill, rock removal, retaining,
This, most builders won't even touch it.
About 150k extra for the build. At least.
You will not be able to borrow anything near that on your income.
But in answer to some of your other questions.
Can I buy with a small deposit, of less than 10K? - No.
Should I get a house and land package? - No.
How do I go about organising the whole thing? - Talk to a broker first and find out your budget, deposit requirements etc.
Should I talk to a mortgage broker? - Yes.
Will they be more willing to accept me if i tell them I plan on renting out the spare rooms? - No.
Would my income of about 3K per month be sufficient for a roughly 400-500K total cost? - No way.
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? - As soon as the mortgage starts (ie, developer requires payment) you will have to pay interest.
Any other advice, or a general run-down of the process? - Find an existing house that you can afford and buy that house. Do not buy an empty block or any kind of house and land package.I think this thread is good, gives people an insight on different lifestyles and capacity. There may be alot of people in OPs shoes
Sounds like your whole life is revolving around purchasing your first home. If slaving away for a mortgage is really what you want then I would suggest focusing your effort on expanding your earning capabilities. Unfortunately earning 3k/month isn't going to facilitate a home loan. Even if you got a loan you're going to have a terrible quality of life with what you describe as your life goals. Having a home loan under your name, a new born and working night shift at HJs sounds debilitating. A bank wont give you a loan, and for a good reason.
Just rent, enjoy your life and if you're serious about purchasing a home, find a new job.
I would suggest focusing your effort on expanding your earning capabilities.
Yes, this should be an absolute priority.
Lots of great advice here in this thread. At this stage, your income is nowhere near enough to afford the mortgage repayments. And say you do manage to find a lender who's willing to lend you up to 95%, I can almost guarantee it'll be at a rate far worse than what you'd be able to secure with more substantial income/savings, and also what happens once the interest rates go up (which it inevitably will) over the coming years? Do you really want to live in shitty housing in a subpar location, miles away from any decent infrastructure, with minimal capital growth or rental potential, and with the stress that your house could be taken out from under your feet at any moment if you fail to keep up with the mortgage repayments? The whole point of owning your home is (or should be) to give you freedom, stability and security - and you won't be able to achieve that if you're maxxed out to your eyeballs and slaving away for a house and land package in the middle of nowhere.
You sound like you're very disciplined already, with your work ethic. You're asking all the right questions, and are well on track to achieving your goal of owning a house. However I will say you seem to be fixated on this idea of building a house on land, and finding reasons to justify your decision, when there's been plenty of sound advice here why this might not be the best idea for you. If I were in your situation, I would look at firstly building up my savings and ongoing income - this will allow you access to a wider range of lenders which will provide you with a more competitive rate, as well as providing you with a buffer against mortgage stress when interest rates hike. The other thing I would do is consider living in a van, to save on living expenses - though I realise this is pretty drastic and not for everyone and from what I read it does take a toll on your mental and physical health, so by no means would I recommend this in the long term. After this, see what areas of discretionary spending you can cut down on, if you haven't already - takeaway, food delivery, non-essential grocery items, cigarettes, coffee, alcohol and going out are where you'll typically see the biggest reduction in your ongoing expenses.
When you finally do buy, make sure you're not borrowing up to your maximum capacity - you will almost certainly be better off buying an established property (even if it's a unit or an apartment in a small complex) well within your budget, in a premium, more desirable location, as compared to spending the maximum allowable loan on a volume built new house in the middle of nowhere.
All the best with your journey, and don't stop asking questions - you'll get there!
Would my income of about 3K per month…
Your priority in life right now should be increasing this, significantly.
Let's say your goal is to double that.
Is this achievable over the next few years in your current job/industry via promotion or changing employers etc?
If not then start thinking about what other jobs you could do that pay more, if you need more education/training then start planning that out now.
I did another calculation using my pay summary, and the amount of time that has passed this financial year, and it actually worked out to be about $4,500 per month average before tax, which is a lot more than my initial rough estimate.
Is OP going to get gruarnted large rasies per year eg apprentice some banks will consider this
Do you parents have property will they go guantor?
Banks will not consider you are planning to rent out rooms for a PPOR, if you did you would not be entitled to grants i dare say.
I bought a property and rented out 2 rooms for years its money for nothing, at that stage market was a heap of 3 bed 300k speckies i spent 360k and got 4 bedroom established property with 2 bath 2 living rooms, I pretty much did my own thing and roomies shared upstairs. If you go a basic home you are either in your room or in the living room with your roomies unless you get on with them you are screwed.
If it helps this place is now an official investment property and i rent it out to 2 seperate tennants making darn good money (mind you 1 increase in 3 years which aligned with more split system AC's)
But you should not consider this as as income.
You may be able to buy a unit or similar on your wage but i was 100K+ when purchasing my first place at 360k, dont forget this will stop you from getting loans for cars and the like.
I have have no idea what your planned job growth will be like but if we are talking a few k per year that will be eaten up via inflation.
Update: the broker from Aussie Home Loans called me back and said I could borrow 350k. And I'd need a 21k deposit. Even considering there's 14k left on my car loan.
https://www.abc.net.au/news/2022-03-28/home-buyers-to-receiv…
This can get you a house with 5% deposit without LMI (assuming you qualify).
Thanks, that's nifty. But do do I actually get the 5% deposit? No broker or bank has mentioned it yet.
No, you must have 5% deposit (17.5K for 350K).
You will also get FHB grant of 15K. https://www.revenuesa.sa.gov.au/taxpayer-stories/first-home-…
Lastly, in SA, you pay GST only on the land portion for new builds, which may save you a few grands as well. Again talk to your broker for more details. He can work out exact amount needed by you in your bank account.
It is a good idea to have at least 3 months of clean banking history (no Afterpay/Zip/uberEats etc.) with your deposit balance increasing.
@nuttapillar: You don't get a 5% deposit. You must already have a 5% deposit to be considered for this scheme.
Banks generally require 20% deposit. If you don't have 20% deposit then they may consider your application with 5~15% deposit but you have to pay for Lender Mortgage Insurance (LMI) which is anywhere from 10K to 40K (depends on the type of property/location/ banks internal algorithms). This scheme allows you to not pay that LMI with a 5% deposit. The government acts as a guarantor.
With the way things are going in the markets, I strongly discourage you from going for a property until you have substantially more savings and can afford at least 20% deposit. Very risky when your LVR is < 5% and the interest rates rise on the back of stagflation this year.
Put your money elsewhere like a managed or index fund while you continue saving up that deposit.
It's not the time. Interest rates are about to go up and up.
House prices will stall, build costs will hopefully come back to normal. But not until later this year or next year.
Unless you can afford to pay top dollar to build, have the capital cost stall and interest rates you pay climb well north of 5% (let's just assume it could get to 10% to be safe and you need to be able to afford that).
Focus on your career / personal development to get a higher income first.