Tips for saving for a deposit

For first home buyers, saving a deposit can be tough, here are three winning tips to help set you on your way to home ownership.

 

Put your goals in writing

Setting a financial goal will make it much easier to plan and save successfully. Make a conscious effort to track your expenses so you can see where your money’s going and cut back where you can. Small sacrifices, such as taking the bus instead of a taxi, cutting back on buying coffee or bringing your lunch to work can also go a long way towards helping you save.

 

Beat the credit monster

Credit card debt, unpaid bills and personal loan repayments can be major setbacks to your saving efforts. As part of your saving strategy get these debts paid off. Start by paying off debts with the highest interest rate – typically your credit card. If you can’t pay it off in one lump sum, ensure that you pay more than the minimum monthly repayment. You’ll not only slash your debt, you’ll also have extra funds to channel into other debt commitments or savings.

 

Make your savings work harder for you

Making cutbacks on your lifestyle is one thing, but putting that money to use is another. Remove the temptation to spend your savings by arranging a set amount to be taken out of your pay each month and put directly into a savings account. Shop around, and seek a high interest rate savings account to get the best returns – many banks offer an online high interest account that you can squirrel those savings in to.

 

If you are looking at buying a first home, be sure to get in touch to talk through your options. You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

Understanding Lenders Mortgage Insurance (LMI)

Clients of mine who are first home buyers have saved a $50,000 deposit and are looking to buy a property for around $550,00. Given that their deposit is around 9% of their purchase price, they are required to pay Lenders Mortgage Insurance (LMI). Based on their deposit amount and property purchase price, the LMI is approximately $13,450, which they will add to the total cost of their loan and pay off over the life of the loan. 

 

As a general rule, if your deposit is less than 20 per cent of the value of the property, you will need to pay for Lenders Mortgage Insurance (LMI). There are also some specific cases that require a higher than 20% deposit, depending on the type and style of property you’re purchasing – for example, some inner-city apartments or rural land.

Why do lenders insist on LMI?

The lower your deposit as a percentage of the purchase price of the property, the higher the lender views their risk in the event that you fail to meet mortgage payments and the property needs to be repossessed and resold. It is important to be aware that LMI only covers the lender if you default on your loan payments (and the lender is unable to secure the full outstanding debt still owing, when they sell your property). LMI does not provide you with any cover.

How much does LMI cost?

The bigger the percentage of the property’s purchase price you have to borrow, the greater the amount you’re likely to pay for insurance.

A handy site that offers an approximate guide on how much LMI may cost is the LMI Premium Estimator on the Gemworth website. For a more exact calculation on LMI, it is best to get in touch to work through what it might be for your specific situation.

 

How is LMI paid?

LMI is usually paid as a one-off lump sum at the time of settlement but in many cases it can also be added into the loan amount and paid off over the life of the loan – a term known as capitalising the LMI. LMI is always paid directly to the lender as part of the settlement and the lender then uses their preferred insurer.

Why would you pay LMI? Why not wait until you have 20% deposit?

Lenders Mortgage Insurance (LMI) allows some buyers to enter the market earlier than they could if they had to wait until they have the required deposit to ‘avoid’ LMI. For first home buyers, particularly those struggling to save a deposit in an environment of rising house prices, but more than comfortable to meet their mortgage repayments, it can be a key tool to break free from renting and get into the property market.

 

If you need any information on Lenders Mortgage Insurance, or are looking at buying a first home, be sure to get in touch. You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

 

 

How much can you afford to borrow with your first home loan?

Understanding how much borrowing capacity you have when buying your first home is an essential step for all newcomers to home ownership.

The question of “How much can I borrow?” rears its ugly head for all new home buyers. As daunting as it can be, understanding your borrowing power is important – and essential – for those ready to get their foot in the door with their first home purchase.

Financial factors

Before you start looking for a property – either to live in or as an investment – take a look at your finances from all angles and ask yourself a few important questions:

  •          Do I have enough money to pay for a deposit?
  •          Can I afford to make monthly repayments?
  •          Is my repayment/credit history positive?
  •          Have I assessed my household budget?
  •          Am I planning to start a family soon?

Understanding where you stand financially and what financial loads may be coming your way in the near future can give you a clearer picture of how large or small your borrowing capacity should realistically be.

Figures that figure

How much you can comfortably afford to borrow comes down to two factors:

  • The size of your deposit. Most lenders require a minimum of 10 per cent of the total property cost.
  • How much you can afford in mortgage repayments.

If you’re currently renting a property, your weekly or monthly rental amount is a good indication of the starting figure for your mortgage repayments. This is the bare minimum, however. You will need to add other expenditures to this figure, such as rates, taxes, lenders mortgage insurance (if applicable), among others.

New buyers may also want to consider single or joint income amounts. As a general rule, your mortgage repayments (along with other short and long-term expenses) shouldn’t cost more than 35 per cent of your gross income.

Help wanted!

Many people choose the help of a mortgage broker when shopping around for their first home loan, and for good reason. Using a mortgage broker to seal the deal can give you greater choice, peace of mind and clarity, especially for those just starting out in the property market.

Mortgage brokers have a wealth of knowledge to steer you in the right direction in terms of what you can realistically afford versus what you think you can afford.

There are many home loan calculators that can also help buyers get a sense of their borrowing capacity. These online calculators factor in your loan type, loan length and interest rates to calculate a general repayment figure. Your broker will be able to walk you through these calculations to ensure you’re aiming for the right figures. 

Doing your due diligence from the very start will pay big dividends when it comes to home ownership. Putting your expenses under the microscope may be intimidating at first, but it will ensure your home loan works as hard for you as you did for it.

 

If you are looking at buying a first home, be sure to get in touch to talk through your options.

You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

How Much Can I Borrow?

This is often the first question that a client will ask before they even think about buying a new property, and many are surprised at the answer they get. Different lenders have different policies with regard to the maximum borrowing they will offer but there are some basic principles that remain constant throughout.

Borrowing capacity is determined by several factors:

  1. Eligible Income

Eligible income may include income from primary work, income from investments, income from Government benefits or a combination of the above. In some cases, Lenders will require that employment has been for a certain period of time, and they may not accept some types of income. Your Broker will navigate the maze of what is ‘eligible income’ for you.

  1. Living Expenses

Living expenses are generally calculated as the higher of your declared living expenses or a minimum benchmark set by the Lenders. The Henderson Poverty Index is one measure which has been used as a benchmark minimum. As a guide for a single person, the applied living expense ranges from just over $1,000 per month up to over $1,700 per month. Couples range from around $1,800 per month up to around $2,700 and each dependent can be from around $153 up to over $500 per month. This variation goes a long way to explaining why some borrowers may be eligible with one lender but not another.

  1. Other Commitments

Existing credit commitments will reduce the amount that someone is able to borrow. For example, if you have a car loan, personal loan or another property loan, the repayments on these will reduce the amount of additional finance available. If you have Credit Cards, the total limit (regardless of whether you pay them off in full) will impact the amount that you can borrow. As a guide the monthly commitment for a credit card is equal to around 3% of the total limit – for example if you have Credit Cards with a limit of $20,000 this equates to a commitment of $600 per month (3% x $20,000)

Once income, living expenses and other commitments are ascertained the borrower will hopefully have an amount of surplus money available each month – this amount is then used to calculate the maximum repayment possible and by extension the maximum loan amount.

The lender will apply a rate of interest that is higher than the current rates available – this provides a safety net or buffer in the event of rising interest rates. For example, whilst most Standard Variable Rates are around 5% at present, the Assessment Rates (or implied rates for this purpose) are between 7% and 8% in most cases.

Lender calculators can be useful, but should only used as an approximate guide. Your specific circumstances and the lenders policies will determine exactly how much you can borrow.

If it all sounds a bit complex, don’t worry your Mortgage Broker will help!

 

Need any information on Home Loan Options?

telephone  Contact Doug on (m) 0408 671 524 or (e) douglas.piening@choicehomeloans.com.au

 

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.