There appears to be a shift in the mindset of the young who are feeling that home ownership is all too difficult. While certainly we have seen home prices come off the boil in recent months that has made very little difference to the affordability of home ownership to first time buyers and that is the main reason why so many of them are now sitting on the sidelines instead of joining the property ownership train.
Obstacle # 1
Home Loan Deposit is like Mount Everest, many have conquered it but to the rest of us it seems like an impossible goal.
There are lenders today who will offer first home buyers a home loan with us little as 5% deposit. Then there is the purchasing costs like stamp duty, legals, moving, and various inspection costs.
If you are buying an established property worth $400,000 n Victoria for example, then you need to have saved somewhere in the vicinity of $35,000 at the minimum.
However if one of you is self employed with limited financials or has some history of bad credit, the same $400,000 purchase may require a deposit closer to $100,000.
It is no wonder that many young people prefer to remain renters rather than make a home purchase.
Obstacle # 2
Qualifying for a home loan even with an adequate deposit can present a challenge to the “not-quite-right” borrower.
If you are self employed, you will need to provide a lot more proof of loan affordability than a PAYG borrower. Your mortgage broker will be looking for 2 years of business financials and will generally take a very conservative approach to the calculation of your loan affordability.
If you have recently changed jobs or one of you is looking to take some time off work to look after children, this will have a detrimental affect on your ability to qualify for a home loan.
Obstacle # 3
The First Home Owner Grant is not what it used to be. Most State Governments have reduced the grant during the past 12 months which means that all you have to count on as far as a deposit and purchasing costs is your savings or help from family.
Not all parents are home owners themselves and may not be able of willing to assist with your purchase. That can make things appear even harder for the First Home Buyer.
Obstacle # 4
The other issue that First Home Buyers have concerns over is the issue of property valuation. You may have purchased your dream home for $400,000, and were pre-approved by your lender for a home loan to 95% of $400,000. Then when the contract is signed, and the bank valuer goes out to value your purchase, they come back with a valuation of $375,000.
What that means is that they will only lend you 95% of $375,000 and the difference needs to come from the purchaser. If the purchaser does not have the shortage of funds they may find themselves in a predicament of losing their home loan deposit.
It does not happen all the time but in the currently weak property market it does happen occasionally.
So why consider property ownership?
Despite the above listed obstacles, property ownership is not all doom and gloom. It is a great way of enforcing a regime of saving on to a new family which can generate a very nice windfall as you approach retirement. After all for most of us our family home is our key asset and many will rely on either selling this asset or accessing some of its equity when reaching the retirement age.
Any property that you purchase at the age of 25 for $400,000, is likely to be worth well over $1.5m by the time that you reach 60. This is an asset that is not taxed by the government and therefore represents a nice little nest egg for the future.
As with everything in life, obstacles that you are informed about can be planned for and avoided or at the very least managed.
If you are unable to put together the required deposit on your own, it may work well to make your first property purchase with a family member or a friend, that way the deposit responsibilities are shared and are more manageable.
Your first property does not need to be your home, it can be an investment property which allows you to grow your equity for 5 – 10 years first and then sell and buy a home with a larger deposit. Furthermore it is generally easier for a borrower to qualify for an investment property loan than it is for a home loan for owner occupation. This is because the investment loan will generate an income while the home loan will not.
To prevent being caught out with a low property valuation always sign your purchase contracts ‘subject to finance’ and make sure that your purchase is valued before the contract becomes unconditional.
While not everyone agrees that home ownership is worth the trouble, those of us who get on to the property ladder early and stick with it are most likely to reap the rewards of a comfortable retirement.
Article by Honey Loans – Australian home loans specialists