Deposit Strategies

Getting a deposit together for a home is a hard task. Here are some tips on how to start:

  • Budget – You need to focus on what you really need instead of what you want.
  • Split Savings into Different Buckets – split you savings account in to folders for “Rent”, “Holiday”, “Home Deposit”, “Social Events”, “Food” etc. Set aside an amount each week for each item and avoid touching your Home Deposit account for any other use.
  • Be Realistic – Your first home may not be your forever home. Use this property as a stepping stone to buying a bigger and better house in the future.
  • Make Saving Fun – Set your priorities, plan and reward yourself along the way (with something that isn’t pricey!)
  • Live Frugally – avoid brand names, find the cheaper parking space, make coffee at home and be more conscious of your spending. Some sacrifices need to be made.
  • Ask for Family Support – perhaps your parents could help with the deposit or act as a guarantor.
  • Get a 2nd Job – look at whether it is possible to get another job or increase the hours you work at your current job.

Loan Pre-Approvals

You can apply for a loan pre-approval with most Lenders. This is where your loan limit is approved for a certain time (usually six months), giving you a better understanding of what you can afford to pay for a property. You’ll then have a better idea of what properties to look for and won’t have to stress about financing.

Minimum Sizes of Apartments

It is important to note that some lenders won’t provide mortgages for smaller apartments (under 50sqm) or will only do so if a larger deposit is paid towards the property or other additional conditions are met.

Guarantors

A guarantor is a person who guarantees to pay for someone else’s debt if he or she should default on a loan obligation. A guarantor acts as a co-signor of sorts, in that they pledge their own assets if a situation arises in which the original debtor cannot perform their obligations. Many First Home Buyers use their parents as guarantors when their LVR is high in order to be able to obtain a loan.

Special First Home Buyers Rates

Some lenders offer special first home buyers rates which include waivers of annual fees and lower interest rates. Your broker will work with different lenders to help find the best package for you.

Stamp Duty

Stamp duty is a tax set by each State/Territory government that you are legally required to pay within 30 days of settlement on the property. The amount paid is set in relation to the value of the property and the State/Territory you live in. Calculate your stamp duty

Government Grants & Stamp Duty Concessions

Each State & Territory has different stamp duty concessions and grants for First Home Buyers. These stamp duty concessions can range from full exemptions, to concessional rates, depending on the state you live in and the property value.

These grants are one off payments that vary from $2K to $20K and differ depending on the sate you live in and the property value. To find out specifically what you are eligible for, please visit http://www.firsthome.gov.au/ and select your applicable state.

Additional Costs to Keep in Mind

  • Building & pest inspections – it’s a good idea to obtain a professional report on the current condition and any issues affecting the property you’re about to purchase (you can sign a contract subject to a building and pest inspections report – providing you time to get these reports without missing out on the property)
  • Legal fees – it is vital that you have a solicitor review the contract and organise all paperwork that needs to be sent to the State government and the individual selling the property. Shore Financial has an in-house firm of solicitors that can assist with a free contract review as well as a cost-effective service for advising you if your bid is successful for the remainder of the transaction
  • Home/building insurance – it’s a requirement that you take out insurance for a mortgaged property
  • Utilities – phone, internet, electricity and gas
  • Council & water rates
  • Body corporate fees (for apartments/villas/townhouses)
  • New furniture & whitegoods
  • Ongoing maintenance

Investment v Owner-Occupied

Investment Property

Pros

  • Cheaper – You can purchase a property without making as many financial sacrifices as you would an owner-occupied property
  • Income – It generates its own income which should subsidise your interest repayments or cover them completely
  • Tax benefits – Many costs associated with the property can be claimed as tax deductions
  • Equity – If the property increases in value you will have more equity to use for your next property purchase

Easier financing – You don’t need as large a deposit as lenders take into account potential rental income from the property

Cons

  • Living arrangements – you need somewhere else to live, whether it means staying at home with your parents a little longer or renting somewhere cheaper
  • Tenancy gaps – there may be gaps between tenants renting your property, so you need to ensure you have the funds to cover such gaps
  • Stress – you need to be able to cope with the stress of having strangers in your property and be ready to deal with tenants that can be quite problematic
  • It is not a liquid asset – it will take time to sell the property if you decide you need the money for something else

Tax – Land tax may be payable (depending on the value of property)

Owner-Occupied Property

Pros

  • Tax benefits – you won’t be subject to capital gains tax when you sell your property (if it has increased in value) or land tax
  • It’s yours – you can live in your own home and decorate and renovate as you wish

Cons

  • Harder to obtain finance – you will need to satisfy deposit & income requirements in order to obtain a loan

Mortgage repayments – you will have a substantially large amount of money to pay on a weekly/fortnightly/monthly basis

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