The median Sydney property price has now surpassed $1 million dollars. The sad reality is that many young people have to face how difficult it is to get into the property market.
It's no wonder that many feel like giving up on their home ownership dream. The deck is stacked against the current generation trying to get into the market.
For the average Aussie, the depressing reality of saving for a home is the TIME it takes to come up with enough cash for a deposit - they are looking at many, many years.
Another sad reality is that the 1 million dollar property won't cost 1 million by the time they have enough money as a deposit and they will be left chasing their tails. Chances are it will cost 1.2 million or 1.3 million in several years time, just when they have saved up enough cash, with prices moving faster than they can save.
Buying a home to live in can be a little less challenging as you can get in starting with a minimum 5% deposit, with some lenders buying an investment with you which requires a 10% deposit. Many purchasers overlook the money that is required for the added costs (stamp duty etc) as well as lenders mortgage insurance that come in around 4% of the mortgage.
See the example of figures below;
5% Deposit - $50,000
Cost estimate - $50,000
Lenders Mortgage Insurance - $38,000
Total - $138,000
Now you are probably even more disheartened learning the above,but there are a number of considerations to look at with this equation. Bear with me, as I promise to share some positive news by the time you have read this article.
Now that you have an idea of how much deposit you need to work towards saving, the next question is how much will a lender lend to you, based on your current income. There is no simple answer to this as each person's income and expenses vary.
However, let's assume you have no current liabilities or monthly debt repayments,so, as an indication, you may be able to borrow 6 - 8 times your income.
$80,000 - 1 income
$80,000 - 1 income
$150,000 - 2 incomes
$150,000 - 2 income
Now, buying on your own can be challenging with just one income. Many buy with a second person so they have enough income to service the bank mortgage.
Ongoing commitments are a killer to your borrowing capacity, so the lower the credit card limit the better and not having a personal loan or car loans is even better.
If you are spending all your income on your lifestyle, your commitments for your monthly living expenses will reduce your borrowing capacity.
(Seek professional advice from a mortgage broker to get an accurate figure for your situation).
As you are borrowing as much as possible, the lender will charge you a higher rate of interest as a consequence of having a 5% deposit. Mortgage repayments on a $950,000 loan over 30 years at 2.99% will equal $4001 per month with principal and interest payments.
Where you are borrowing 95% of the property value (5% deposit)the lender and mortgage insurer will be more stringent with your application.You will likely need to show that you have saved up the deposit over at least six months with bank statements to prove it.
Any lender will look closely at your employment record,requiring you to be full time employed, with no probation periods in place.Bonus income and sales commission will need to show consistency for a couple of years to be taken into consideration. Self employed borrowers will need two years of tax returns confirming current personal income, with a number of variables that will affect how much you can borrow. I won't go into too much detail here.
Now we move onto your credit score and credit history which need to be healthy, especially if your loan requires mortgage insurance. This is because the lender may be fine to lend you the money, but if the lender's mortgage insurer does not provide approval to insure the mortgage, your loan will not be approved.
All of this can take a little while to get your head around, so you need to talk to a professional, like a mortgage broker, who can guide and work with you to get a better understanding on your property buying journey.
The bank of mum and dad for some lucky ones, either providing some or all of the deposit or providing an equity guarantee may be worth looking at or begging for.
Now lets be real, saving money for a deposit is going to take years and sacrifices, with budgeting and reducing expenses, all while you watch the property market rise in value while sitting on the sideline.
One solution is co-investment. We can co-invest in the property with you, being one of the only property companies with skin in the game and with an equity stake in every property. We provide you with the 10% deposit,working with buyers to get into the market right now, as investors with neutral/positive cash flow.
The strategy is to live and rent in the suburb that you love and start an investment property portfolio the smart way, getting started with as little as $15,000.
How do I qualify?
1. At least $15,000 in savings
2. Gross income of over $65,000 for singles and $110,000+for couples
3. Full time employment
4. Clear credit history
So what are the next steps if I want to find out more?
Click on this link to book a time for a free, obligation free meeting, so we can see if we can assist you.
If you have been wanting to get into the market, now is the time to act.