Ashley, an architect, is 24 years old and stays with her parents in Melbourne. Unlike many of her peers, instead of splurging her wages on movies, coffee and travel, Ashley is on her way to purchasing her first property with just a little help from her parents.
“My parents are keen investors and encouraged me to start saving for my first property young. I began saving when I was 21, and have already put down $75,000 for my home loan deposit. My parents have agreed to help me financially and we are looking for a property in and around the neighbourhood,” says Ashley, excited to buy the first investment property in the huge portfolio she aims to build.
But Ashley is not alone. According a report published by Suncorp Bank in June 2015, young Australians are saving more than ever and at least 24% of those between 25 and 34 years of age are saving money for their first home. Interestingly, many youngsters are more inclined to buy an investment property as compared to being owner occupiers.
“Property investments have been giving huge returns and it is best to start early. I don’t need my own home as my parents are willing to allow me to stay with them and our house is located conveniently near my workplace, saving me tons of money that I can apply towards my property purchase,” adds Ashley.
Indeed, many young Australians are extremely smart with their money and instead of splurging on intangible goals such as foreign vacations, they are furiously building their savings to break into the property market. “Of course, I’d rather be wealthy first and then travel. With the way the house prices are booming, the best time to buy is now so that I can be debt free in my later years,” quips Ashley.
If, like Ashley, you want to break into the property market before you have spent a quarter of your life on Earth, here is a checklist to guide you on your quest:
1. Get ready to buy a property
Understand the property market – Take the first step towards buying a property by understanding property dynamics, real estate jargon and market trends. There is lot of information online to brush up your knowledge. You could also take advice from your relatives and friends who are successful property investors.
Start saving regularly – Now that you have decided to buy real estate, it is time to make a budget (We give you some saving tips), cut down frivolous expenditure and start saving for your home. Lenders need proof of genuine savings for at least 3 months before approving your home loan. Of course, it makes sense to build a buffer for emergencies.
Build a deposit – A 20% home loan deposit for a $450,000 property means a saving of $90,000, which is a tall order. However, by setting a target and saving diligently, you can save up to 10% of the amount and go for a low deposit home loan or ask your parents to support you like Ashley did. Read here for tips on building your home loan deposit.
Tip: All savings accounts are not the same and it pays to put your money in a high interest rate savings account. Compare interest rates online to make your choice.
2. Financing your Property
Know how much you can afford – As a young buyer, it is even more important to understand how much you can afford to spend before taking the plunge. While this handy calculator helps you calculate your borrowing capacity, don’t borrow only because you think you can. Calculate monthly repayments and take into account a higher interest rate to actually figure out what size of a home loan can you service.
Tip: An additional 5% of the purchase price is required to take care of accessory costs such as taxes and stamp duties. First home owners can take advantage of FHOG but if you are buying an investment property, you may no longer be eligible for a State grant.
Pull out your credit report – You can receive a copy of your credit report for free online. Go through the entries thoroughly and dispute any incorrect entries immediately. A spotless credit report is the key to a lower interest rate and better negotiation power.
Also, know how you can maintain a high credit score.
Apply for home loan pre-approval – Apply for a home loan pre-approval before you start searching for properties. It will help you stay in budget and also have cash ready once you like a property. However, don’t forget that pre-approval is not the same as final approval. Know what not to do during your home loan pre-approval.
Type of home loan – In case you decide to buy an investment property, an interest only loan can be a good choice to find your feet in your career as well as the property market. Though, a traditional principal and interest rate will help you build equity faster.
Compare home loans online – Often, you can find a great deal by simply comparing mortgage rates online. However, cheapest isn’t always the best and it is important to look for a loan that includes the essential features you need, even if it costs a little extra.
3. Finding a Property: Finding a property is a crucial step as the location and choice of the property will determine its capital growth and rental yield.
Look beyond your neighbourhood: Get out of your comfort zone, as there may be more affordable deals in other suburbs or States. Do you know it may still be possible to buy a home in Australia around the $400,000 mark?
Research for high growth areas – Family friendly areas with easy access to schools, shopping malls, parks and public transport are always the best bet. Order your free property report and focus on vacancy rates, rental yield and historical growth to make your choice. Here’s a guide to help you spot the next booming suburbs.
Type of property – It may be a good idea to buy an investment property and, If your parents allow, save more by continuing to stay with them. Apart from the rental income, an investment property also offers a number of tax benefits.
Tip: Do hire an experienced real estate agent for finding tenants and better property management, especially if you have bought interstate.
4. Get in touch with experts – While you can chart the world of real estate alone, it always helps to be guided by experts. Ask family and friends for recommendations to build your team of experts including an experienced buyer’s agent (read for questions you must ask your buyer’s agent), a legal expert and a mortgage broker.
A mortgage broker can help you save a great deal on your home loan apart from helping you choose the right loan for your financial condition. Get in touch with a mortgage broker at HashChing for more information on financing your home.
By Vidhu Bajaj