Tips & tricks to own your own home before middle age
Whilst the median house price in Sydney or any other high growth cities in Australia are constantly on the rise, it’s no wonder young residents are having a tough time entering the property market.
Purchasing a home in Sydney or any other high-growth market in Australia can be difficult but it is not impossible with some sound financial planning and a little help from parents (if available).
Invest when you’re young
Many young people are now staying longer in the family home, where – if they are focused and financially switched on, they will be able to save a substantial amount of money, which they would otherwise have had to outlay on expensive rent if they were to move into their own accommodation. Paving the way for a sound financial future is not difficult if a regular pattern of saving is established early in working life – even during the years of part time jobs whilst still at school. Unfortunately, many young people do not see the worth of saving these few dollars at that time, however, with a sound saving record and perhaps a limited guarantee from a parent to obtain an investment loan– young people are able to purchase their first property and establish an income earning investment for themselves while still living at home relatively cheaply.
Later on, when it is time to purchase a family home perhaps with a partner, and on a full time income, the equity realised in the investment property or perhaps the proceeds from the sale of the property and any additional savings will assist to enable a larger loan to purchase the elusive dream home.
Additional tips to help young investors.
1. Parental assistance.
With house prices rising in many parts of Australia, many parents are happy to provide limited guarantees for their children’s home loans and where years ago it was necessary to have separate legal documentation prepared to limit the risk to parents, the banking industry has now begun marketing home loan products that limit the risks to parents if their children are unable to repay their loans.
2. Save—but remember to still enjoy life – balance your budget.
Consistent savings habits will stand borrowers in good stead with lenders because they’re looking for evidence of regular savings over time, hence, you should get into the habit of putting aside money from any income, even casual jobs. To meet lender’s guidelines, you’ll need to show savings of 3% of your purchase price, generally over a six-month period, however, the longer and more consistent, the better.
3. Seek sound advice from professionals – this may be your biggest investment
For a reasonable fee consult a financial advisor to help you set savings and repayment goals based on your income. What’s more, you don’t always have to pay for the service as some lenders cover the consultations. You can also seek the assistance of a buyer’s agent whose services cost about 2% commission on the property price and the buyer’s agent fee might be tax deductible after the sale of the property (a financial advisor can advise further in this regard). In other words, after you sell your property, you would only be taxed on the profit after the buyer’s agency fee is deducted.
Always remember to have your solicitor review any documentation prior to signing (especially if the Contract is to be unconditional). Most sellers will allow Contracts to be conditional on satisfactory finance approval and satisfactory pest and building reports – the selling agent will be able to assist further in this regard. A mortgage broker can access loans from all the major lenders and get provide help with paperwork and there is usually no charge for this service.