Am I Ready to Buy a House?

Lkamex on 12/12/2019 - 17:09
Last edited 12/12/2019 - 19:34

Hey guys, so the basics are I'm 21, and considering buying my first home in the coming year or 2, aswell as my options. I'm on the side of building and taking advantage of the FOHG, which would be 450-500k and have a plot of around 300m², or I can also buy an established, ~20-30 year home for that price on 6-700 m².

The numbers are, 20,000$ saved up in my ubank savings account, I'm on 50k a year +OT and have set up a salary sacrifice under the FHSSS of 300$ pw, I'm estimating I'll be able to save another 10,000$ myself aswell as 15,000$ in the next year which means I will have 45-50,000$ (10%) saved up when I do decide to purchase the property.

I spend 130$pw on rent, ride a motorcycle, so insurance rego & fuel for that is about 100$ a week, I would spend around 100-150$ on food (and alcohol.) Other than that, I live quite frugally.

My logic behind this is I want to just get into the property market as soon as possible, and just set up my life.

Feedback on whether to build/buy, if I build, when to start planning/talking, or any companies I can talk to for this (SE Melbourne) and in general if this sounds like a reasonable plan, or am I just in over my head, and should just live life and worry about purchasing the property on my late 20s/early 30s once I have a comfortable 20% saved up with a bit of fallback money.

Edit: It seems that it may be possible for me to get a property, I'd have no security for it, and no real chance/opportunity for a career change or any changes in life.

At this stage, I will keep salary sacraficing and saving what I can, and will re-evaluate buying an established home in a few years once I have considered other routes for employment and have a greater deposit ready.

I appreciate the input you guys have put forth.

Financial

Comments

  • dasher86 on 12/12/2019 - 17:15
    +10

    Unless your income hits about $75-80k by the time you're about to buy it could be difficult to get finance with only 10% deposit.
    You're better off buying as there will be less cost blow outs and with your finances you can't really afford a blow out.

    • kamex on 12/12/2019 - 17:25

      During the Christmas period we get quite a bit of overtime (on average about 1,300-1,500pw currently) when I was on 1,000$ a week I was approved for 3,800. I can either get pre approval now which may be enough, or wait till next Christmas period, or alternatively ask for overtime for a few weeks.

      • knk on 14/12/2019 - 19:05

        Pre-approval is a crap shoot and doesn't properly factor in lmi. Half the time they don't even do a credit check on you prior to giving it to you.

        We've had 'preapproval' and then been knocked back for lmi and had to add extra to get below 80% lvr.

  • dcep on 12/12/2019 - 17:17
    +16

    no just no , you're overextending

    just get the cheapest shoebox you can find

    • kamex on 12/12/2019 - 17:27

      I know it's possible for me to do with current circumstances, that being said I can see where you're coming from, as there isnt much room for error, should I lose my job, get sick ect.

      • dcep on 12/12/2019 - 17:34

        i suppose you'll be paying LMI on 90% LVR with 10% deposit, so factor that in
        but apra/banks have loosen up , so you can borrow whatever you want
        almost all of your loan repayments will be for interest due to low deposit
        home ownership costs/bills , are way more than your current $130 rent pw

        if you ever proceed, just go with established
        you are not ready and don't have the buffer for building
        go read the nightmares of home building

        • kamex on 12/12/2019 - 19:23

          I have forgotten about council rates and such while budgeting all this, which shows with such a tight right now definitely isn't the time. Possible, sure. But not advisable, not worth all the excess financial stress at this point for the minor asset gain I'll receive in the early days.

          I will mention I plan to rent the spare rooms out for 1,000$ a month which if all is going smoothly only leaves me 6-700$. But even then, not advisable.

      • HighAndDry on 12/12/2019 - 18:25
        +6

        "Possible" isn't the same as advisable. Property is very illiquid. You can't sell off part of it if your circumstances change.

      • goonsta on 14/12/2019 - 22:03

        I don't think so. I was on more than you when I got my loan about a year and half ago and the bank (ubank in this case) would not lend me any where near 450k. I budgeted to keep 25k AFTER paying my deposit, you'd be surprised how little this is, especially if you're considering building, and most banks are going to ask what you're left with as a buffer.

        They're also going to lend less if you're attempting to purchase a block of land on its own with the intent to build, as it's more of a risk.

      • NatoTomato on 16/12/2019 - 15:15

        As someone who is on 55k a year, just purchased a home with 50k deposit at 350k, I think you'll struggle to find a lender willing to loan that much on your current salary.

    • geoffs87 on 14/12/2019 - 06:21
      +2

      Yeah, Mmm probably not that house on that income.

      My wife and I, who are both on at least double your income, only have an $800k loan. And while we don’t struggle, and salary lifestyle creep is definitely a thing… I think I’d be crazy to double the loan size (which would be the equivalent of you taking a $400k loan on your salary!

      Unless you can get a tenant or two, or can Airbnb a room or two, I’d advise a hard no one spending that sorta cash.

      Now in saying that, I think renting is nuts, certainly best to buy, just do it right!

  • saintpotter on 12/12/2019 - 17:19
    +2

    Whatever you decide (as to being ready or not), please do not forget that Stamp Duty on a $500k property is upwards of $20,000 (if you are in NSW). So that saving in your bank account is pretty much nil all things considered.

    • kamex on 12/12/2019 - 17:28
      +4

      In victoria, the FOHG is waived stamp duty for the first property regardless, as well as 10-20,000$ if I choose to build. (10,000$ for the areas I'm looking at)

      • livealittle7 on 15/12/2019 - 20:45

        Isnt that for houses upto 600K only?

  • garetz on 12/12/2019 - 17:21
    +2

    Seems like you are in a good position mentally, if you do what you say you are going to do, you should be in a good position to do it financially in 2 years time.

    • kamex on 12/12/2019 - 17:33

      Yeah that's the plan. 300$pw in my salary sacrifice + what I pay in rent here now should be a good simulation for what a mortgage is like, and as I plan to rent my spare rooms out it should make it easier again.

      • stewy on 15/12/2019 - 19:06

        Keep in mind that renting out rooms opens a whole other can of worms in terms of income tax and capital gains tax…

  • Commander Shepard on 12/12/2019 - 17:35
    +1

    Id say go for it if your property/house your buying is around 300k. I didn't know VIC was that generous with their FHOG and waiving stamp duty.

    If its more then that, I would wait.

    I live in SA for reference. Houses are a lot cheaper here.

    • kamex on 12/12/2019 - 17:38
      +1

      I wish I could get somewhere local for 300,000$ haha. For reference a 250m² block around here is 250,000$ which will cost 100-150k to build on. I'd like to get somewhere with a tad more land ideally.

      • Oipjo on 14/12/2019 - 07:25
        +1

        Not too far off the far West-Western Sydney market for land prices - building costs around Sydney are almost double what you're quoting for a build, don't know about the disparity between Melbourne and Sydney markets for building costs, but it's possible you may, be looking at around $200-250k for a standalone Single level home. Double story are about 350-500k, but single would be more than enough.
        I built 2 years ago, at 24 Y.O - my income is considerably higher and I had a lot more savings, but it's definitely been a worthwhile experience.
        There are of course concerns going into relationships with wealth above many of your peers. I hid the house from my fiance until I was recently ready to marry, stating instead that I was renting in the area. There was recently another forum post on that exact issue - can never be too careful!
        I'd have a chat to your bank about 'understanding your borrowing capacity' and seek some advice, without going for pre approval (impacts credit score), this is a cost free, and risk free process which will give you some valuable information. Plenty of schemes back you up with Superannuation, and FHOG as well. I built, but now looking for a second home, and going existing, building new homes these days isn't without its issues… You'll be paying progress payments most likely, some builders do deposit and balance at completion, but for progress payments, consider that you'll have paid for the land (at least), and be paying a mortgage for half the house for ~7-9 months, before receiving anything you can use. New homes are nice, but the value is mostly in the land… Close to transport, shops, and hospitals are great, consider future infrastructure so the value is more likely to increase, and it will serve you very well.
        If you can hit the targets, definitely go for it!

  • sempro on 12/12/2019 - 17:37
    +7

    keep saving

    /thread

  • tsunamisurfer on 12/12/2019 - 17:38
    +8

    No you are no where near ready.

    1) 10% deposit means LMI….LMI is harder to obtain than the actual mortgage. When the LMI underwriters see your $50k on $500k spend at historical low interest rates, they will reject the application.

    2) I'm going to be kind and say $50k gross is $45k NET that's $3750 per month take home. Your proposal is $500k less $50k deposit = $450k loan. Assuming 3% over 30 years thats just under $1900 / month more than HALF your take home pay.

    3) Interest rates can be expected to go up over a 30 year commitment. Let's be conservative and say it will only reach 5% which is still low considering the mean. That will make it over $2,400 / month, personally I would budget for 6%.

    Sorry but this is not tenable.

    • kamex on 12/12/2019 - 18:05
      +3

      The government is trialing a scheme for first home buyers with under 20% where they will cover the LMI which is ideal if I can utilise it. I did not think that a bank wouldnt approve a loan based on a low deposit tho, granted the income is there.

      Half my income is something I can live on, although as mentioned before that's not accounting for error should something drastic happen, which may not be smart. And I will admit I did not account for the interest rate going up.

      When do you think would be a more ideal time for me to buy a home?

      Although as I look at the amount of interest I pay opposed to principal, renting doesn't seem as bad.

      • geek001 on 12/12/2019 - 18:27
        +2

        tsunamisurfer is right. Even if you reckon you can live on half your salary, which I also had the same thought when I bought my first home, banks will likely to say no due to "responsible" lending. I think you will need to save up and somehow get your deposit to 20% or borrow less, then there maybe some banks that will even consider you.

        Definitely go established because you know what you are getting, home building is always prone to costs blowout and headaches, and other things you never considered like security screens, landscaping, curtains, etc.

        But I think you are almost there, sounds like you are in a good headspace to look after a loan, just need that deposit I reckon. Good luck.

        • kamex on 12/12/2019 - 19:26
          +1

          Thanks man, I never considered building price blowouts, so I likely will go established.

          • Thaal Sinestro on 16/12/2019 - 00:06

            @kamex: So difficult entering the housing market, since 2 of the 3 pieces having been rapidly inflating, land and construction costs (tradesmen salaries). Only raw construction materials have been largely excempt from this hyperinflation. Welcome to "Generation Rent".

            25 years ago, a person in your position could have been able to get a load for a modest detached home. Now poorer people (income under $80,000/year) can only afford to acquire housing if they have a double income.

      • seabombs on 16/12/2019 - 10:51

        Not sure what state you're in, but the state govt gives out home loans themselves that seem to avoid LMI. Not sure how they compare overall with the banks, but only need 2% deposit!

        e.g. for QLD: https://www.qld.gov.au/housing/buying-owning-home/financial-…

  • Muzeeb on 12/12/2019 - 18:20

    buying my first home in the coming year or 2

    Report back in a year or 2 with your financial position. Who knows what property values / interest rates are then.

    Keep saving hard but until then it is pure speculation.

  • atris17 on 12/12/2019 - 18:23

    Hey you did the numbers, that a good start
    I say do more research and learn more about the market
    Get in contact with mortgage agent too, too gauge how you can borrow ?
    Make sure you budget for renovation too!
    Because I bought a dirty gem, and it look good now after 3 Years of Reno work

    • kamex on 12/12/2019 - 18:36
      +1

      This was the other option I was considering. Buying a older shitter with a bit of land that is structurally sound, renovate it over a period of time, then refinance and hopfully making a tidy profit on the added value to the house in doing so.

      But you are right, I do need to do some more research on the area.

      I have spoken to a broker, I've been told I could borrow 380, but since then I have done quite a bit more overtime so I estimate I can borrow 420-430 now which means if I really wanted to (and got approval) I could afford a 450,000$ property now.

      But I do think at this stage my best option is to keep working for the time being, let the 300$ a week in my super do it's business and hope that by this time next year I'm at a position where I can commit.

      • [Deactivated] on 14/12/2019 - 14:00
        +1

        Overtime doesn't count for 100% in estimates, banks shade it. They might see $1000 of overtime and count it as if your base earnings are $200 more. They'll also want to see it being consistent over a year or more before they'll really consider it at all.

        Personally I wouldn't want to borrow $400k on twice your income.

        Definitely buy the shittiest place you're willing to own for 10 years (bare minimum) -20 years.

        I got tempted when the government threw around $14k for existing properties, when they withdrew that my property price dropped by as much or more. There are loads of places in Brisbane worth less than they were 10 years ago, so prices going down does happen, getting in early with a big mortgage could be a ticket to poverty.

  • tsunamisurfer on 12/12/2019 - 18:36
    +4

    Even if you get LMI, that is only one hurdle, there are the other two which will be harder to overcome.

    In fact I think that government LMI scheme will do as much harm as good as there are people who think getting past LMI means they have made it.

    In a 30 year mortgage :

    • You will likely get married.
    • You will likely have a child(ren).
    • You will buy a car.
    • You will go on a holiday.
    • You will experience the rising costs of running a household. Utilities / Food / Petrol / insurances etc.
    • You may become ill (Allah willing you will be healthy always).
    • You may be out of work for a short period.
    • The economy may go into Recession.
    • Interest rates will fluctuate.

    These all have costs and need to be factored in, what mitigants will you put in place?

    Right now you have no buffer for life's events even though you feel you can survive.

    I like LMI in so far as their providers factor in worse case scenarios (given they have to pay the bank) and actually do you a favour by blocking you from getting a mortgage.

    Right now your salary is too low for a $500k purchase. You will be ready when you elect to purchase something more affordable commensurate with your income, or your income increases or you find a partner who will also bring in income.

    • kamex on 12/12/2019 - 19:09
      +1

      These are all valid reasons, I get what you mean about the LMI scheme.

      I should mention that my plan with this property is to live here for a few years, and then turn it into an investment once that's a financially sound idea.

      I do get why LMI is a thing, and ideally have 20%, but I want to try get in soon as possible, but yes I agree now is a bit early.i feel MS paint has it right. Keep saving as I am for a year or 2 and then re-evaluate.

  • [Deactivated] on 12/12/2019 - 19:09
    +3

    You don't have the capital. $20k is what you should keep as reserve.

    You don't have the cashflow. You are not anywhere near your forever job. You don't have any form of income other than a minimum wage job.

    You don't have the knowledge. You're considering having practically zero cash reserves and gearing yourself heavily at the expense of flexibility to grow your income.

    Some people will never do more than earn minimum wage. If this is you, perhaps buying now is better than buying later. Once you do this, you better not rock the boat as you can't afford any decrease/loss of income.

    • kamex on 12/12/2019 - 19:17

      You do have a point here. One of my main concerns is tying myself down with a mortgage and then realise I want to do something where I need to study, but can't afford to. So this is something I will definitely be looking into over the next year, before I re-evaluate buying a property.

  • Godric on 12/12/2019 - 19:27
    +1

    Talk to a Broker

    • [Deactivated] on 12/12/2019 - 19:28

      Talk to someone who is financially incentivized to get you the biggest loan possible?

      • tsunamisurfer on 12/12/2019 - 19:36

        I have dealt with Brokers both as a retail customer and as an employee of a lending institution.

        What you mentioned has merit but on the flipside to that good brokers won't waste their time (and yours) on compiling an application that won't get off the ground.

        Yes you will get bad brokers willing to push the limits of the truth or even go full tilt deception. There are more sophisticated ways of finding these now and the penalties are likely to outweigh the benefits.

    • kamex on 12/12/2019 - 19:36
      +1

      I have spoken to a broker, he's more-less just given me numbers to work with. Hasnt made any comments stating I'm not ready or to that effect.

  • datafellows on 12/12/2019 - 20:54
    +2

    If your rent is so cheap and you don't hate where you live, don't move.

    When you have saved enough, buy a 2 bedroom unit, cheaper one will do and rent it out. Ideally rent would cover the mortgage, if not 100% at least most of it.

    Don't over extend yourself by buying the most expensive in the market. Buy lower end will do. Always keep some cash or have an offset account.

    Go to open houses, see at least 50 units before you buy. Talk to the agents, get an idea what type of tenants you'd get and what type of rental income you'd be looking.

    Talk to mortgage brokers and get a good solicitor who doesn't charge arm and leg.

    • kamex on 13/12/2019 - 05:58
      +1

      Should clarify, rent is 350 with 220$ coming from the other 2 rooms, and when I buy it will be a simmilar situation.

      From my research a 2br unit is at most 50k less than a 3br house, and I feel that renting that third room out will more than make up the difference in rent, although if I do find a real good deal on a small unit I'll definitely jump on it. Medium property value for a 2brin the area I'm looking is 438, and 3br is 483,
      Although you are right, I do need to do more research and attend open days before I commit to a purchase.

  • brad1-8tsi on 13/12/2019 - 07:40
    +3

    A $~470k loan on a $50k income is not my idea of a fun life unless you are envisioning yearly 20% wage increases over the next 5 years.

    • keffrussel on 13/12/2019 - 08:33
      +14

      In Australia the correct spelling is currency. Best you get this right next time.

  • [Deactivated] on 13/12/2019 - 08:43
    +4

    I’m not sure you’d get a loan for the amount you are suggesting based on your salary unfortunately. Yes your calculations add up, but the bank will be looking at your overall capacity and asking more questions like how much is your phone bill, insurances, etc.

    In terms of future growth, the area that I assume you are alluding to is overpriced. Smaller blocks full of volume builds. Unless you want to live there long term, it might be better to invest in property elsewhere.

    At 21 go live your life, houses come an go. Now is the ideal time to be selfish and do what you like: travel, study, up skill in your job, move to different areas, take a job regionally for a year or live in an appartment in the city. There is more to life than having a mortgage.

    • kamex on 13/12/2019 - 12:13
      +2

      You seem quite intellegent, this is all very solid advise. The area I'm looking at is near greater Dandenong, and I'm not sure there is a whole lot of growth. As I mentioned, my plan would be to live here for a few years, possibly upgrade/renovate if needed and then refinance to a rate that rent can pay for including land rates.

      I feel like doing more research and buying where there is more growth would be beneficial for sure.

      So yeah I'll live my early 20s enjoying it as much, the 300pw in my salary sacrifice is a head start over 90% of people my age for when I purchase and then once I'm ready to settle down I'll be set up fine.

      • [Deactivated] on 15/12/2019 - 08:55
        +1

        If you need to think about refinancing, then the numbers aren’t working for you. I’m not saying that to make you feel bad, but you need to be able to afford it and have some emergency money to cover gaps in rent, good insurance, maintenance upgrades etc.

        Being 21, there is a high probability you will meet your significant other during the next decade. I’m at the end of my 20s and have bought and sold a house, travelled, started my career and moved 7 times interstate and regionally in the past 10 years. Anything can happen, unforeseen opportunities come up and being able to take them without regret is something that is valuable.

  • b0rnwithabeard on 13/12/2019 - 10:41

    sounds like you're off to a good start, but honestly, I'd keep saving. A 10% deposit when you're earning 50K isn't going to be looked favourably by banks. Whatever you do, do not build for your first home - especially with someone with such a small salary as yours. There' s way too much risk that things will get blown out financially. It's great that you're eager, and you're currently doing everything right, but keep up what you're doing.

    My only bit of advice of something you're not currently doing (or maybe you are, you don't say), that I got from my accountant, because I was like you when I was younger: get a credit card. Just a small limit of $5k or something, but use it regularly and pay it off regularly. I know people will read this and freak out because they'll say all CC's are bad, but if you can manage to keep making regular payments, and pay it off on time every time, it's another bit of proof to show the bank that you're responsible with finances and know how to balance your money properly.

    (And if you can't, and you go stupid and blow the limit in a week on making stupid purchases, well at least you've shown yourself you're not ready for a home loan. WIN/WIN.)

    • kamex on 13/12/2019 - 12:21

      Yeah I never realised there was so much risk with building, so buying is the way to go. Still no stamp duty so can't complain.

      I do have a credit card (got it from Coles when that had that 100$ gift card promo) and what I was doing for a while is putting my whole income into a savings account (after I paid rent bills and any expected big purchases I knew were coming up) and just used that credit card to buy all my food, drinks and if I wanted to go out, and with my first paycheck of the month I would pay that off, although recently been a bit lazy with the credit card and have let it sit unused. That being said, what benefit does a credit rating have? Just more chance of getting approved?

      • b0rnwithabeard on 13/12/2019 - 13:08
        +1

        Unless you're hundreds of thousands in debt to various finance companies, don't worry so much about a "credit rating", that's more of a US thing.

        The credit card is just an additional bit of proof that you're financially responsible - that you can be in charge of a line of credit and not screw it up.

        • kamex on 13/12/2019 - 14:04

          Alright sweet, so I'll try to use that for in store purchases and just pay it back at the start of the month like I used to, thanks

    • boredrandom on 15/12/2019 - 01:57

      Actually, a credit card might negatively affect your ability to borrow from banks as it's already seen as a "potential loan". If possible, it's recommended to reduce the credit limit of your card before applying for loans due to this.

      • Kill Joy on 15/12/2019 - 15:05
        +1

        Yes it can reduce your borrowing limit by 3 times your current credit line. E.g if you have 2 credit cards with a total limit of 20k, then your borrowing capacity is reduced by 60k from the banks perspective.

        The best approach is to use a credit card right up until the month when your applying for a loan and get rid of it. That way you have the consistency of the monthly credit payments with none of the baggage.

      • b0rnwithabeard on 16/12/2019 - 09:11

        yeah that's why I said get only a small limit. I guess it's one of things anecdotal things - back when i first saw a mortgage agent to give me some advice, he was shocked because i didn't have a credit card, had never taken out a personal loan, a line of store credit, or anything. He said it was good that I'd gotten through life that far without all that, but that it could also be bad because i didn't have any real world proof that when lumped with financial responsibility, that i was able to actually manage it.

  • DardyMate on 13/12/2019 - 23:35
    +2

    Hey Kamex,

    I was in the same position as you 3 years ago. But I purchased my first place, though an apartment (1x1x1), when I was 21. I was earning approx 45-50k pa while at Uni, no debts and savings of 40k.

    My logic back then was to get into the property market asap, so I looked for options. Spoke to a broker and apparently I am able to borrow ~480k with my current earnings (unsure how).

    I would love to own a house back then, but it's too risky and I don't want to "lock myself in" by paying all the bills, mortgage etc. Remember, you have to allocate money for maintenance, council rates and other bills etc etc. Strata if it's apartment/unit/townhouses.

    From my experience, I have three suggestions for you.
    1) If you really wanted a house and is worth 450-500k - keep on saving. You're gonna be maxed out with a 50k pa salary with 20k savings.
    2) You can consider buying a house and renting out the spare rooms (risky).
    3) Do what I did! Buy an apartment (usually cheaper) and enjoy your life being young and not having too worry about that much repayments!

    • kamex on 14/12/2019 - 05:56

      Not going to try buy in a 20k deposit, going to wait untill at least 50.

      Living in houses is how I've always, I've got a car and 2 bikes, and need a bit of room if I want to work on them, so adapting to an apartment lifestyle would be quite difficult.
      I've also always lived with people, and feel a solo apartment would get quite lonely if I'm honest.

      Not to mention that where I live, I'd have to go quite inbound for an apartment and at that point they're still costing 3-400k.

      • DardyMate on 14/12/2019 - 10:38
        +1

        Great decision. A car and two bikes would cost you heaps on rego, insurance, maintenance etc. If I can turn back time, I would have not bought this apartment, and instead saved up more and bought a house now that I have a better and secured paying job. All the best.

  • immortalbjr on 14/12/2019 - 09:05

    Speak to a mortgage broker instead of your bank, and if you can afford to buy something, do it. Buying established it alot less stressful and cheaper than building.

    If I've learnt anything in 20 years its theres always going to be the negative "Your stupid if you buy" and "Just wait" types. I bought when I was 20 almost 20 years ago now and had the exact same thing back then, but if I hadn't of bought I wouldn't be in the house im in today. Property ladder takes time to climb, sooner you can get on the better.

    • kamex on 14/12/2019 - 14:43

      Yeah the broker is who I've been speaking to. That's basicly the mentality my workmates have, "just get in there" only real financial downside I see is the ridiculous amounts of interest I'll have to pay with a small deposit. So I'm going to wait untill the lease where I am at now is about up and then buy if I have enough of a deposit.

  • serpserpserp on 14/12/2019 - 10:04
    +1

    OP: Where do you want to live first? Or rather, how far out is the furthest you want to move? 400-500k will only get you an apartment/townhouse for about 20km from the city down the SE way.

    • kamex on 14/12/2019 - 14:45
      +1

      To clarify, anywhere between Dandenong and Cranbourne and officer is where I'm looking plenty of houses 4-500k around there

  • Weezle on 14/12/2019 - 10:06

    I work in Credit.

    What about rates, clothing, holidays, eating out, insurances like health and property, etc? What are your liabilities like like your credit cards or any personal loans or hecs debts? These will all get counted.

    450k loan on your income is 9 times your income. You'll find it difficult getting your loan approved on that alone, really you should borrow a maximum of 5 times your income, otherwise you'll be feeling stretched.

    • kamex on 14/12/2019 - 14:51

      Rates and property insurances are going to be my main 2 concerns. No debts which is fortunate.

      The mortgage would be part supported about $1,000 a month by renting the other rooms out which will make it slightly easier on me financially, so really it'll only cost me 600-1000$ a month.

      The broker I've been speaking to hasnt said I'd have any issues getting approved, that being said that could likely just be him doing his job not trying to scare me away.

      • Weezle on 14/12/2019 - 18:02

        I would highly suggest speaking to a financial planner if your broker isn't one already. Brokers are all about commissions, they won't think about you first.

        Most banks will not use the income from rented rooms for your application.

      • scissorspaperrock on 15/12/2019 - 23:07

        You realize you need to pay tax on that income right? from letting out your other room. And if you don't like them, well your stuck with them once you right up a contract.

  • [Deactivated] on 14/12/2019 - 10:08

    Where the hell in SE Melbourne can you get a house for $500k?

      • [Deactivated] on 14/12/2019 - 12:33
        +3

        Oh I thought the op said Melbourne, not some satellite suburb where you have to drive through 10kms of fields to get to.

        • Pricebeat on 17/12/2019 - 12:40
          -1

          I would rather live there than say Richmond. Full of junkies

    • kamex on 14/12/2019 - 14:46

      The Dandenong to cranbourne to officer areas, so outer south east really.

  • serpserpserp on 14/12/2019 - 10:09

    OP: I have found a house for you: https://www.realestate.com.au/property-house-vic-dandenong-1…

    • Tm15 on 14/12/2019 - 11:20

      how much was that?

      • serpserpserp on 14/12/2019 - 13:41

        Currently under offer but was in a search when I selected 400-500k

    • kamex on 14/12/2019 - 14:47

      "Scott Street"

      Yeah look… No thank you.

      • capslock janitor on 15/12/2019 - 01:52

        What's wrong, that's the name of our hero here

  • Hangryuman on 14/12/2019 - 12:58
    +3

    FOHG ? why not go the whole FHOG ? First Owner Home Grant ?

    After 40 years of property investment, a few thoughts -

    I heard the FHOG amount was mostly just absorbed into higher asking prices - so I wouldn't let that tail wag my dog.

    I bought my first property as a home, and got friends in to rent rooms, but the problem was I couldn't claim the loan interest as a tax deduction, only pro-rata on floor space for rented rooms, so that wasn't so great.

    I would wonder about your borrowing capacity as a young single to take out a large loan.

    And then I would wonder about risk. I enjoyed riding my Ducati until one day an idiot did a totally illegal u-turn on the blind crest of a hill in an 80kph zone - I woke up in hospital in traction - lucky it wasn't the quadriplegic ward.

    Lucky I had a steady public service job which paid my compo for 6 weeks in plaster and rehabilitation. And kept my job for me. Private employers might be more likely 'you don't work here anymore' after such problems.

    Other options include investing with friends as tenants-in-common - subject to clear decisions about what happens when one wants out and their money back - how you'd calculate their share of expenses, contribution, current market price, etc.

    hmmm - just noticed your edit/update - not ready - yeah - but keep your eye out - if you're young and keen to renovate, get friendly with real estate agents re bargain reno opportunities - fix and flip - if you're handy (only).

    • kamex on 14/12/2019 - 15:08

      The FOHG is free stamp duty which is pretty great. The 10g is only for building, which from I heard isn't always worth it.

      I didn't think you could claim tax on a property that's classed as a primary residence, that'd be useful. Every little bit helps.

      My broker has said I can borrow 380+ my deposit, and that's without much overtime. The last few weeks I've had 5-10 hours overtime a week so if I really wanted to and found somewhere I'm sure I could get it, pending bank approval.

      That Tennant's in common thing is actually something worth looking into for me. I just need to figure out how it all works, because ideally I'd like to say buy 66.6% and have my current housemate buy 33.3% would be ideal. That's something I can look at in the coming year.

    • screensaver on 17/12/2019 - 16:43
      +1

      I agree, as an oldie I would say motorbikes are far too dangerous, and NO alcohol either, whether you drive or not. It leads to problems. Get into the health and fitness lifestyle like gyms and healthy eating.

  • weee on 14/12/2019 - 13:07

    do your due diligence before jumping in, but whenever you feel ready, just go for it, do you know what's your biggest asset? being young!!

  • t_c on 14/12/2019 - 13:21

    Well I guess the smart money has to sell to some sucker before the crash.

    • serpserpserp on 14/12/2019 - 13:42
      +1

      People been talking about a crash for the past 20 years. Still hasn't arrived. Always "just around the corner".

      • [Deactivated] on 14/12/2019 - 14:08

        There hasn't exactly been stellar price growth outside NSW/Vic/Tas though. Prices are lower in plenty of places compared to 10 years ago, despite record low interest rates.

        • serpserpserp on 15/12/2019 - 08:12

          Prices are lower in plenty of places compared to 10 years ago

          Not sure where you are talking about. But where the majority of people live (Melb/Syd/Bris) that is just flat out wrong.

            • serpserpserp on 15/12/2019 - 18:26

              @t_c: I can't see that article behind a paywall, but that was in April things have changed in 8 months.

              But what I quote above is true. Property prices in Syd/Melb/Bris are not lower than they were 10 years ago.

          • [Deactivated] on 16/12/2019 - 11:12

            @serpserpserp: Live in Brisbane, in this area (Inner Brisbane) they're lower. In Logan, lower. In Cairns, lower.

            Averages and like for like are not the same thing. I both bought, have been looking to sell and have been looking to buy so very carefully looking at the Brisbane market, and it's gone nowhere. Sure, there are plenty of shiny new over-priced apartments and a few very expensive housing estates that account for a lot of the turnover, but actual established homes have largely depreciated, excluding those that are now able to be demolished for higher density options. Some of the regions have crashed majorly, of course no one much lives there in comparison to Sydney / Melbourne, so who cares?

            As mentioned I excluded NSW/Vic in my comment, so bringing up the crazy growth in their capitals isn't exactly news to me. Personally I'd be terrified to buy in Sydney or Melbourne at the moment.

            • serpserpserp on 17/12/2019 - 17:44

              @[Deactivated]: Article from 2010: Median house price in Brisbane = 500k.

              https://www.brisbanetimes.com.au/national/queensland/median-…

              Article from October 2019 which comes from RBA data: Median house price in Brisbane = 647k.

              https://www.smartpropertyinvestment.com.au/research/20170-pr…

              Your antidotal evidence isn't fact.

              Here is some QBE research that includes regional centres. Have a read and even in QLD it shows growth as well (except Townsville).

              https://www.qbe.com › lmi › media › lenders-mortgage-insurance › Files

              • [Deactivated] on 17/12/2019 - 21:32

                @serpserpserp: Using two different sources to compare values across time is a really bad way to do that, because they're not even guaranteed to be the same thing. (eg, Greater Brisbane vs Inner Brisbane) are both called 'Brisbane' depending on the angle of the writer. Those are also house prices. https://www.qbe.com/lmi/news/reports/housing-outlook > Has the 2019 median for Brisbane at $548k.

                In any case, using the ABS's Established House price index (which again, not ideal because it's just houses):
                2009 Perth: 103.5
                2019 Perth: 99.8

                2009 Darwin: 97.8
                2019 Darwin: 92.4

                These are not adjusted for inflation (they're inputs to determine inflation), which makes them even worse in real terms.

                Brisbane's HOUSE prices:
                2009 Brisbane 105.9
                2019 Brisbane 125.1

                At a mere 2% inflation the index should be at 129. And that's houses, not all property. The actual average inflation rate 2009-2018 was 2.2% (data not available for 2019 yet).

                Hobart, Sydney and Melbourne are the only cities to beat the inflation rate, and Darwin and Perth have gone backwards even unadjusted.

                If you want to fact check someone, definitely use the ABS. Other sources (particularly multiple) are clearly 'antidotal'. Even then you should read the ABS's methodology to understand where they might be any gaps in the analysis and what data they're relying on.

                Companies that profit from the real estate market definitely have a profit incentive to misrepresent data. It's also worth looking suburb by suburb if you're thinking of buying as localised areas also have their own price influences (new infrastructure vs cancelled infrastructure, opened schools vs heaps of new development etc). Median's mean precisely zero when you own a real property and not a share in an index fund.

                I couldn't find your QBE file either, though I did get distracted by the data that conflicts with other claims.

                Also worth noting since Dec 2009 the RBA cash rate has dropped from 3.75% to 0.75%, which makes this scarier. There's not going to be another drop like that to prop up the market.

                • serpserpserp on 17/12/2019 - 22:19

                  @[Deactivated]: Link me the ABS data you are looking at specifically because I am looking at the same index right now and it is telling me a different story to what you have outlined.

                  Also in your initial comment you weren't outlining that you were adjusting for inflation. You said house prices were lower in 2009 than 2019 and of course people are going to consider this on face value.

                  Indexes are usually focused on providing insight into pure price change of a product/widget etc. With this being so on this index, the number you have shown above is higher for Brisbane in 2019 than 2009 so it is proving my point anyway. If you start to bring in others factor like core inflation into the mix then you open the door for a bunch of other factors to be introduced that have both positive and negative impacts on price.

                  Also I would argue that the ABS in recent years aren't exactly the source of truth they were once noted as being. I mean look at how they have fumbled the inflation and the unemployment figures in recent years (to only name the ones that have been bandied around in the papers). Not saying that the sources I used are more stringent however.

                  This could turn into a long running argument here about interpretation of data and how it is all pretty imperfect. But you do have to agree that on dollar face value, house prices in Brisbane are on average, higher in 2019 than they were in 2009. That is pretty straightforward.

                  • [Deactivated] on 17/12/2019 - 22:24

                    @serpserpserp: https://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/6416.0S…

                    There you go.

                    I wasn't adjusting for inflation but I also never said house prices. To back up a property price claim you jumped on house prices, which is the most favourable selection. My last post highlighted that even house prices haven't been spectacular outside three cities.

                    Again, my claim was merely property prices, you jumped on 'house' prices.

                    Honestly, if you can't trust the ABS then throw everything out and rely on a gut feeling.

                    I don't see how they've fumbled inflation or employment figures, they have a methodology, as I pointed out in the last post you need to understand the methodology. The government is picking what methodology they would like to use for unemployment (thanks Howard) but the ABS isn't 'wrong'.

                    Yes, I agree, median house prices are higher, and I NEVER SAID OTHERWISE!!!!

                    That said, many houses individually are much lower, even if the median is higher. It's close enough that localised variations are really important. In Sydney the total market growth has (historically unusually) made it almost impossible for there to be localised drops (Opal towers etc excluded)

                    • serpserpserp on 18/12/2019 - 07:58

                      @[Deactivated]:

                      Again, my claim was merely property prices

                      You actually did not state property prices specifically. So of course I jumped on houses prices because that is how the world talks on these matters. If you are talking property prices, you might mean vacant land, commercial, industrial property etc. which all have very different cycles.

                      Yes, I agree

                      Great!

                      • [Deactivated] on 20/12/2019 - 15:35

                        @serpserpserp:

                        You actually did not state property prices specifically.

                        Your comment I responded to did.

                        Property prices in Syd/Melb/Bris are not lower than they were 10 years ago.

  • Ragnarok1983 on 14/12/2019 - 14:06
    +1

    Considered going to uni or getting a trade to further your earning potential?

    • kamex on 14/12/2019 - 15:12

      This is one option I'm going to flesh out over the next year, problem being I don't really know what I'm passionate about yet.

      I have mentioned in an earlier comment that I do want to ensure I'm doing a job that I'm comfortable in, which if I decide to study to study will mean pushing home buying back a bit.

  • kamex on 14/12/2019 - 14:55

    Wow seems this landed on the front page and blew up.

    Appreciate the input guys, although 1 question, what's the likelyhood of price blowouts with home and land packages? I've seen home and land packages for 400-450k (minus FOHG) which if the price stays true is a bit cheaper than established.

    Thanks.

  • DiscoJango on 14/12/2019 - 18:53

    OP claims to be 21 yet writes and has the logic of someone in their 30's, good job! Not many people that age who think like you, well done. keep in mind that its better to save up a 20% deposit to avoid lmi however also factor in another 5% for things like conveyancing, legal fees, house inspections, bank fees and moving fees, in otherwords, budget to save up 25% of the cost of the property.

    also keep in mind that your pretty young, your career can go anywhere, so dont base the purchase location on where you work right now, you could be on the opposite side of the country next year, who knows…

    • kamex on 14/12/2019 - 23:14

      Haha, thanks man. Yeah I get that a lot, kinda been thrown in the deep end early in life and had to grow up fast

      What inspection fees would I have to pay? I feel conveyancing fees are the main ones I'd really need to budget for, that being said whenever I buy I'm going to make sure I keep a few grand left over for any sudden costs, such as a maintance item I oversaw.

      I do want to eventuslly change career, that being said I don't know what to and if I do commit to buying a house, I may not have that financial freedom to study if needed which is one of my bigger concerns. Although given all my friends and family are in this area, and it's a area I know quite well, ideally I want to stay here for at least 5 years, and if I do need to move for whatever reason I'll just turn it into an investment and rent where I move to :)

      • DiscoJango on 15/12/2019 - 08:37
        +1

        One really hard part of purchasing a property is removing the "emotional element" and think of it as a purely business purchase. Think of it as just buying a "box", nothing more, nothing less, that the only reason you are buying is so it can increase in value over time. But the size of the box and the location matter, as you want it to be appealing to renters/buyers.

        Therefore consider your market. Famlies want a good size house, several bedrooms for kids, a backyard for the kids to play in, close to daycare, primary & high schools schools and a relatively safe area.

        Young professionals and students on the other hand only need 1 or 2 bedrooms, tiny kitchen because they eat out, needs to be close to public transport, trendy cafe's and universities.

        Try and avoid stamp duty as much as possible as this can easily be $20k - $40k, however since your a first home owner, and you will live in the property, just keep the price below $600k in Vic, slightly different for regional Vic.

        Other costs besides the direct cost of the house include mortgage registration fee, physical relocation costs, building inspection fees, conveyancing and bank transfer fees. This could roughly be $7.

        Also factor in that when renting, you dont pay for maintenance or council rates. A home owner does all of this. A/C stuffs up? Pay big bucks for a tech to come and fix. Same goes for hot water, the stove, exterior paint, interior carpet etc etc etc. Everything wears out over time, this is why when going for a loan, a bank will look at your loan to income ratio, and generally dont like it if your mortgage repayments is over 35% of your take home income. So if your bringing in say $4000 a month after tax, your max mortgage repayment will be $1400 (roughly).

  • Jugganautx on 14/12/2019 - 20:03
    +3

    From someone that also bought a house young. Your first house shouldn't be your "dream house" and buying new isn't always better.

    Just my 0.02.

    • kamex on 14/12/2019 - 23:08

      Definitely not dream house shopping. A modest 3 br house, ideally with potential to renovate and add value, or add a second bathroom to the master if it only has one.

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