How People Afford Mortgage?

aliash on 08/08/2023 - 01:03

Bit of a background.

The combined income of around 150K after tax. My wife works part-time due to 3 young kids. We have a savings of 150,000 A$ with 0 debt. Want to buy a 3 bedroom house in a low socio-economic suburb of Sydney where the average median price of a home is 800,000 A$. Dont want to get into Units due to Strata overhead.

On average, I am getting quoted on the home loan for around 6.3%. If I take a loan for 600,000 $ that makes monthly repayments of $ 3,724 per month. House ownership includes maintenance, council rates,home insurance, bills etc which is extra

I am trying to do some maths and monitoring my expenses from the last few months. With Groceries, Utility Bills, rent i.e 475$ per week and all the expenses like car rego, swimming lessons for kids, childcare costs etc I end up with very little savings.

I am watching a lot of podcasts these days to understand the science of home ownership vs renting and one of the shows which I really liked is US based show called The Ramsey Show. According to his calculations, we should never buy a home that is more than 25% of our total income. Also, he never recommends getting a 30 years loan. Instead, he advises people to go for 15 year's loan.

Now in my scenario, I cannot even imagine getting a 15-year loan. Even for 30 years, it seems impossible to me. I cannot move out of Sydney due to work. Now as per my understanding, not a lot of people in Sydney have earnings of 150K a year after tax. If I am correct then how the heck people are paying such high repayments?

We are first-home buyers and therefore don't want to miss out on stamp duty. Also, I have a salary sacrificed around 20K which I can withdraw from my super under FHSS scheme so not inclined in investing in other states.

Should I just forget about buying a house and live all my life in a rented place? Sorry for sounding too naive but I need suggestions from a wider audience as I don't have many friends in Australia who can assist me with my queries.

Financial Home Loan

Comments

  • david6509 on 11/08/2023 - 10:20
    +1

    id easily take more debt than having to deal with landlord / realestate agents. Better to get in when you can afford it (which to me looks like you have the income and deposit). Ive had friends that have waited for the "dip" and even sold to buy back in later only to find that the market increased more than the deposit they had in 12-24 months.

    • star-ggg on 11/08/2023 - 11:14
      +1

      Trying to time your PPOR would be so awful.

  • bobolo on 11/08/2023 - 12:31

    Rent for 10 years. Spend as much of your savings/capital on investment properties, shares, crypto, businesses etc. Gradually cash out of your investments as they perform and have the option to buy a house you actually want to live in with a huge deposit or even completely with cash.

    Or realise that renting makes a tonne more sense financially and from a lifestyle/flexibility perspective and keep building wealth

    • david6509 on 11/08/2023 - 12:59

      or flip PPOR properties every 1-2 years without the tax implications. ive been doing this for the last few years and its paid off massively.

      • mlburnian on 13/08/2023 - 19:22

        What about selling costs and stamp duty

        • bobolo on 14/08/2023 - 10:24

          Simply a cost of doing business. If you make a million in capital growth would stamp duty and a bit of buying/selling costs stop you from taking profit?

          • mlburnian on 14/08/2023 - 19:59

            @bobolo: Where are you or david6509 making a milli CG in 1-2 years…

            • david6509 on 18/08/2023 - 12:54
              +1

              @mlburnian: i havent been making millions but my last two PPOR made just over 200k net each in a year on the northern end of the Gold Coast. Looking to settle down now as moving so frequently does get tiring but ive set myself up now that i no longer need a mortgage.

  • blaque on 11/08/2023 - 12:49

    Genuine question here:

    If the house price is $800k, the deposit is 20%, isn't it the OP needs like $160K + stamp duty + conveyancing etc so basically no savings left? Or am I missing something here?

    • aliash on 11/08/2023 - 13:03

      I believe that is correct. I did the same calculations. Just no stamp duty as we are First home buyer.

      • blaque on 11/08/2023 - 13:04

        so that means it is unlikely for OP to afford even 800K house unless OP takes on LMI

        • Duckie2hh on 11/08/2023 - 13:36
          +1

          Nothing wrong with LMI

      • Cherry12 on 11/08/2023 - 18:49

        You can give only 10% deposit and pay LMI. With your salary of course you can afford that house, you just need to make a budget.

        If you wait too long to have the 20% plus savings; perhaps by then the median house value in that area already increased and end up paying more.

    • david6509 on 11/08/2023 - 13:05

      first-home buyers concession so no stamp duty, conveyancing cost me 1k back in 2022. Mid to high 700s would be better to allow for a small buffer / emergency fund. Also some banks and government schemes allow for a smaller deposit with no LMI

  • SydBoy on 11/08/2023 - 20:17

    Issue with living in unit is not just limited to strata cost but significant quality issues with dodgy builder that we have in Sydney… Look at how many apartments around go through massive maintenance issues after construction finished… !

  • ckria on 12/08/2023 - 09:54
    -6

    Mate, I think you should probably look at your lifestyle. A friend of mine bought a house in mid 2021 for 600K in Melbourne, on single income of 62k and 4 kids. 6 months later, his wife managed to land a part time job too. By now, they've paid of about 80% of the mortgage. They've no family here. It's looks like a fairytale compared to many but they did it. Now they're looking at an investment property

    • mandelbrot on 12/08/2023 - 11:23
      +5

      I call BS. Unless they had $500k cash and only took out a $100k loan, there's no chance they paid 80% off the mortgage on gross household income of circa $100k p.a.

      • ckria on 12/08/2023 - 15:58
        -4

        That's what naysayers like me and you would say. I still feel embarrassed when I told him 'the bank will not approve you' which they didn't anyway. But with a 150k deposit, a broker got him the loan. There now have around 120. You realise that the sooner you pay the loan, the less you pay interest?
        A loan paid in 30 years is almost double what was borrowed, compound interest.

        • xers on 12/08/2023 - 16:32
          +5

          No because your story does not make sense at all mathematically. A 450k loan paid down to 120k after 2 years, even if interest rate was at 0%, they would have had to pay 165k per year towards the loan.

          So unless your friend and his wife had a substantial boost in their income or received a large sum of cash (both of which you did not mention), I agree with mandelbrot, you're full of shit.

        • Baghern on 12/08/2023 - 17:25

          You tell stories like you work for the Church…

  • living4music on 12/08/2023 - 11:14

    Just sign a 30 year mortgage, and if you can pay it off in 10-15 years, great on you. Leave few dollars in the mortgage if you have to pay early exit fee and let it run for the next 15-20 years if needed. But I am sure you will have a way to finish the contract early once you have paid off.

  • Baghern on 12/08/2023 - 17:27

    Op sounds exactly like this reddit post except with some slight changes

    https://www.reddit.com/r/fiaustralia/comments/15n4m0r/40m_ju…

    more details in the comment replies, 40m, been in Australia 4 years earning good money

    But is sobbing over his tremendous fortune over a short period of time

    His lack of information means most comments replies wont apply to him

  • joannatan on 13/08/2023 - 03:58

    take 30 years loan, then you setup offset account. put all your salary into offset account.
    If your salary is weekly then asking bank take your repayment weekly from your offset account.

    Ask the bank if they allow you to have credit card, but you need very discipline with spending on your cc, you need paying off your cc full amount of your statement bill every month, so cc is helping you not getting charge interest, and normally you have either 45-60 days free interest on your cc depending on your cc.

    try use mortgage broker, they can help you to find cheaper rate, every 2-3 years after you finish the honeymoon rate, the broker normally suggest you move to another bank where offer you another cheaper rate, thats another trick to save your interest

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