What’s The Secret To Buying Your First Home?

Saving for it.

Saving for a home loan or mortgage isn’t glamorous but it has to be done. So here are some savings tips for first home buyers to help get you into the property market.

How much should You be saving?

One of the first rules of saving is to set a goal. But what should that goal be? Different people have different needs, but a rough guide is that you should be saving 10% of your pre-tax income. Not saving anything like that? Read on.

What are you spending?

To help with saving, you need to know what you’re currently spending. And not just on the big items like rent, utilities and groceries. Get yourself a notebook and every time you spend money, write it down. Everything. For at least a month but preferably longer. You’ll be surprised where your money goes.

What do you really need to spend?

If you’re a typical first home buyer, you probably haven’t been exercising a lot of financial restraint to this point. Invited out to dinner? You go. See shoes you like? You buy. Take lunch to work? Are you kidding? There’s nothing wrong with that, but if you really want a home, you’re probably going to have to start making some sacrifices. Look through your spending record and decide what you’re willing to give up. You might decide, for example, that life would still go on if you didn’t spend $1500 a year on coffee.

Get rid of credit card debt

You probably used to pay your credit card off every month. But then one month you couldn’t quite manage it and things snowballed from there. That credit card debt is killing you. It is expensive money and you need to eliminate it. Consider transferring the debt to a new card that gives you an interest-free grace period, and save like mad to get your balance down to zero as soon as possible. Then consider the old trick of keeping your credit card in a cup of water in the freezer.

A savings history

If you’ve spent everything you’ve earned – and then some – don’t be surprised if the mortgage market doesn’t put out the welcome mat. lenders like to see proof that you can save. So start putting something aside every month and you’ll be surprised how quickly it adds up – and how much more popular you’ll be among the lenders.

Want more savings tips? Talk to us today!

Home Loans Mortgage Solutions
29.05.2015
buying, children, first home, guarantee, guarantor, loan, parents

Guaranteeing Your Child’s Loan

Rising house prices are making it increasingly difficult to enter the market. Parents who guarantee their children’s loans can help, but it is important to understand how this can impact the parents’ retirement or investment plans.

Being a guarantor generally means using the equity in your own property as security for your child’s home loan. It can help a first-home buyer to secure finance for a property they can afford but may not have a large enough deposit for, and to avoid the added cost of lenders mortgage insurance.

There are other advantages as well. “By guaranteeing a loan, you’re helping your child enter the property market sooner,” Mario Borg, Director and Mentor at Masters Broker Group explains. “Also, your child may be able to buy in a more desirable location and a home that better suits their needs. If they did it on their own, they may need to go further out of the city or perhaps settle for fewer bedrooms.”

The risks

You may want to help your child but it’s important you don’t go into the transaction blindly.

The main risk of guaranteeing the loan is that, depending on the structure of the guarantee, you could be liable should your child default on the payments, either by taking over the repayment schedule or handing over a full repayment.

If you can’t make the payments, the lender may sell the home used as security. If this is still not enough, the lender may also require you to sell assets to meet outstanding debt.

Another major risk is a bad credit rating if default occurs.

Plus, if you need to borrow money for another purpose, your property cannot be used. “If you want to buy an investment property, you can’t use the equity in your home because it’s already tied up in the child’s loan,” Borg says.

Minimising the risk

There are ways to minimise the risks. The most common is using a monetary gift or private loan. “This involves borrowing money against your property in your name, and then gifting it to your child,” Borg states. “You should have a legal agreement in place.”

Another way to avoid the risk is to buy the property jointly with your child. This means your name is on the title and you have a certain percentage entitlement.

When it comes to guaranteeing a loan, it’s always sensible to speak to a professional. You should also consider asking a legal professional to draw up a formal loan document outlining all conditions of the loan, interest rate and expected repayments.

Finally, outline an exit strategy. Financial situations change and, as the loan decreases with repayments, there may be an opportunity for you to withdraw your support to free up your assets without impacting your child’s loan.

Find out more about the different types of guarantor loans, contact us today!

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Tag : first home