3 things that might help you buy your first home sooner!
Sharma Haller, September 2016
When I was renting many years ago, I remember
feeling like I might never be able to afford my own home – and definitely not
the one I really wanted! I was really
keen to have my own space...my very own. It might seem odd, but being able to
hang pictures on the wall, wherever I liked, change the colour of those walls, and
see my children running in my very own backyard, was a big deal for me.
The biggest hurdle I see many people face is
getting together a big enough deposit in the first place. Most banks need a genuine
savings deposit of at least 10% of the property’s value - so if you are looking
at a $400,000 home, you need a deposit of at least $40,000. But even that deposit may not be big enough.
If you aren’t able to provide a 20% deposit, many lenders also require you to pay
Lenders Mortgage Insurance (insurance for your bank if you can’t pay your
loan), which adds to the costs. Plus
there are other costs to consider, like stamp duty.
Still, with interest rates at some of the
lowest levels in history, it is a more affordable time to take that step into
the property market. And there are a
couple of things you could do to overcome the challenge of getting a deposit
together. Here are three that might just help you feel more optimistic and
confident about reaching that home ownership goal sooner!
1. Allow your family to pitch in
Are your parents or other family members keen
to help you buy your first home? If you
don’t have a deposit saved to secure a home loan with your bank, or if you
don’t have enough saved to avoid having to pay Lenders Mortgage Insurance, there
are ways they might be able to help!
That doesn’t mean they have to hand over cash.
They can help out by becoming guarantors for part of your loan. In effect, they
can use the equity they have in their own home (how much their house is worth
less any amount they still owe) as security for your loan. These loan
structures are often called a ‘Family Guarantee’ or ‘Family Pledge’. For example, Heritage Bank has just launched
a Family Guarantee that works by splitting the loan into two parts – one loan
for 80% of the property value, which helps you avoid Lenders Mortgage
Insurance; and a second, smaller loan secured in part by your parents’
property. The end result is a practical way your family members can give you a
helping hand without having to fork out actual cash.
2. Get the government to help out
If you’re a first home buyer, you might be
able to get a healthy grant from the government. The Federal Government
launched the First Home Owner Grant scheme back in 2000, to help offset the
introduction of the GST. While it’s a national scheme, the states and
territories fund it and administer it themselves in their own area. That means
the amount available, and the eligibility criteria, vary from state to
state. In Queensland for example, you
could be entitled to between $15,000 and $20,000. The Queensland Government
recently applied a one-off, 12-month boost of $5,000 to the grant, taking it to
$20,000 from 1 July 2016 to 30 June 2017!
If you think you do qualify, it’s really
important to check the specific eligibility criteria for your region and what
you might be entitled to. Many banks can
help you apply for the grant when you are applying for your home loan. Definitely something to look into. For more information check out the Government's First Home Owner Grant website here.
3. Become an awesome saver
Yes, I know, it’s nothing new under the sun
and it’s not going to get you that deposit today. But the bottom line is that the bigger the
deposit you can gather, the more you will save on the loan. A bigger deposit
cuts down on the amount of interest you will pay, the size of your repayments,
and the length of time to pay off the loan. Saving a deposit also proves to your bank that
you are a reliable borrower.
So how do you step up your savings? Well, a
great way is to have a plan. Don’t leave it to chance or rely on whatever is
left at the end of your pay cycle. An option is to set up a direct deposit to
put away a set amount, every time you get paid, into a high-interest earning
account that you don’t touch. Get used
to having to do without that amount – you’re going to have to do that when you
have a home loan anyway. And don’t
forget to take a close look at where you are spending your money. Are there areas you could reduce your
expenditure and continue to live well?
For example, could you cook more at home and limit lunch dates? It might mean sacrificing a luxury or two
along the way but it can be worth it in the end!
If you are keen to buy your own home, but just
need a bit more help financially, it might just be worth looking into these
three areas. All the best with your home
Sharma Haller is an experienced
banking professional with over 11 years working for Heritage Bank. She
currently manages two of Heritage Bank’s Toowoomba branches. She loves her team and their passion for
helping customers achieve their financial dreams. In her spare time, she enjoys cooking and
travelling and of course spending time with her husband and two beautiful