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Top 5 tips on how to save for your first home deposit

You’ve decided to purchase your first home – congratulations! However, saving for one of the biggest purchases you’ll make in your life is no easy feat. Aside from winning the lottery, there’s no realistic way to fast-track your savings, but there are ways to help you stick to your savings plan! Here are 5 tips to help you reach your dream of owning your first home:

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  1. Be smart with your money

Yes, you will have to change your lifestyle and spending habits. You don’t have to be a genius to know that the most important rule of saving is to have a clearly defined budget that you can stick to! It’s all about priorities – is your mid-morning coffee at work every day more important than the joys and satisfaction of owning your first home? Making a budget is all about realising what expenses are essential, and what you can sacrifice to help reach your goals sooner.

  1. Sell what you don’t need

Is your garage bursting at the seams with things you no longer use? Take the time to go through all that junk you’ve been hoarding and hold a garage sale, or start an online shop on eBay or Gumtree! This will also make things much easier for yourself when the time comes to move into your new home as you’ll have far less clutter to deal with. You’d actually be surprised by how much you can make by selling all the things you no longer want or use. You know what they say – one person’s trash is another one’s treasure!

  1. Move back in with your parents

Paying off someone else’s mortgage while trying to save for your own home deposit isn’t exactly ideal, so why not consider moving back home to live with your parents or in-laws? While the thought of moving back home as an adult may make your skin crawl, it’s actually a very smart money-saving move! To feel more of an equal in the family home, offer to contribute to household expenses, or suggest paying board – even if your parents politely decline. There’s no doubt that these costs will be significantly lower than those you had before!

  1. Get a second income

Working a second job may not be something you want to do, but it may be something you need to do if you’re really serious about saving for your first home. By pulling beers at the local pub a few nights, or dedicating your spare time to freelance work, you can easily add a few extra hundred dollars to your savings account each week.

  1. Invest in a property as your first home

Why not consider making your first purchase an investment property? The area you want to live in may be out of your budget, but by purchasing a less expensive investment property in a more affordable area, you are giving yourself a head start on the property ladder. Owning an investment property doesn’t mean it’ll take you longer to afford the home of your dreams – quite the opposite! It’ll give you the chance to use your investment property as equity to purchase the home you’ll live in. Win-win!

The home loan check-list

Getting the tick of approval for a home loan can be the first step towards owning your dream house. Your financial institution will be able to give you the exact details but it pays to be prepared. Have these documents handy to help speed up the process and give you the best possible chance of success in your application.

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Personal Identification

While individual requirements may differ, having some form of personal ID is your first step. A valid passport, birth certificate and/or driver’s license is ideal although many institutions will require secondary forms of identification such as your Credit Card or Medicare Card.

Income Information

If you earn a wage or salary – You’ll likely need to provide your two most recent payslips, from within the previous 60 days, which show your employer’s name as well as your own. In addition bring your latest Pay-As-You-Go (PAYG) summary, any employment contract (if you have one) and a signed letter from your employer showing how long you’ve been employed for.

If you are self-employed – Common requirements include your two latest Personal and Business Tax returns and Tax Assessments. You may also need to show your ABN and Business Activity Statements (BAS). It is the legal responsibility of the lender to ensure you can pay back the loan, not simply rely on the security of the house itself, so you may have to prove your financial position with more certainty as a self-employed worker.

If you earn Rental Income – You may have to show a letter from the Real Estate Agent showing expected rental income for a given period as well as the lease agreement and proof of rental income via your bank records and financial statements.

Your employment and income circumstances will largely dictate the type of documents you’ll need so consult your prospective lender for more details.

Legal Declarations

Bringing the name, address and contact details of any legal representative shows a level of organisation and commitment that will only help your application.

There are also a number of statutory declarations to keep in mind such as;

  • A declaration demonstrating any funds that will be given to you in the future for the purpose of repaying the loan, but not yet in your accounts.
  • If you’ve received monetary gifts to be put towards the down payment you will need a signed letter (from the person giving the monetary gift) stating the funds are an unconditional gift and not expected back at a later date.
  • If you’re making renovations on the property you’ll need original copies of your local council approved plans and specifications.

The exact nature of your legal documents will vary but if ID and Income combine for the skeleton of the application then your various declarations will flesh out the process further.

Special Circumstance Documents

The more evidence you have of your financial stability, the better your chances of securing your loan, so it pays to bring extras. If you have an acting guarantor for the loan (an individual who will legally be obliged to cover the loan repayments should you be unable), you should have two identical sets of documents, one in your name and one in theirs.

Home Loan Tip – Don’t be discouraged if your credit history has some black marks. If you’re worried about past debts bring a letter stating the details of the debt, the reason for your default and the amount paid/unpaid. Your honesty will help with your application.

Every application will vary depending on your circumstances. Speak to our team at Easy Plan for a list of documents you will need.

How the budget affects your mortgage

The 2015/16 budget was considered boring compared to last year’s budget, but there are still some important points which will affect your current mortgage, and also if you’re looking to buy.

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With a steady stream of news and articles always proclaiming that getting into the property is impossible for first home buyers, every federal budget announcement puts pressure on the government to alleviate the financial strain on potential new home owners.

Foreign Investments

Application fees for foreign investors will see them pay $5,000 for an application for a property under $1 million, $10,000 for $1 million or more, and then increasing increments of $10,000 for every million spent.  The reasoning is to try to discourage frivolous foreign investment, decreasing competition for Australian investors and owner occupiers.

This isn’t expected to have a great impact on foreign investment, but it should still slightly help Australian home buyers and investors gain a slight edge.

Child Care

A $3.5 billion package aimed at reducing child care costs should go a long way to helping families with the repayments on their mortgages.  Approximately 165,000 parents that are forced to be stay at home parents, due to the cost of childcare, could be set to return to the workforce now that childcare is more affordable.

First Home Buyer’s Grant

First Home Owners expecting some help from the government were left disappointed, as the government took no change here.  First home buyer numbers are in a downward spiral, and lower mortgage rates are just helping investors, which is making it even harder for new buyers with the increased competition.

First-time home buyers can also expect to face a challenge when purchasing their home due to increased competition in the real estate market. Low interest rates and rising home costs combine to make the market harder to enter for the first time.

Australian Investors

Australian investors breathed a sigh of relief with the Budget announcement, as there were no changes to capital gains tax, depreciation, negative gearing, taxes on super or the use of self managed super funds.

In the end, the budget is gearing towards getting appreciable assets in your working years.  With the pension age only going in one direction, and the government giving less help here, you need to be working on getting your assets early on.

Refinancing Your Mortgage

If you are considering refinancing your mortgage, lower interest rates under the 2015 federal budget makes it a move that is likely to be worth taking.

Investing in Real Estate

As long as you follow the rules when it comes to real estate investment, the changes that the new budget brings should not affect you. The Australian Taxation Office has been given the authority to crack down on investors who fail to follow strict regulations related to investment.

Buyers with Families

Families that already own a home are more likely to be able to upgrade with the new budget. Lower interest rates and rising prices give families the opportunity to sell their current home to move to a more desirable area or purchase a home with more room to grow.

The real estate market and your home loan

Housing affordability has been a hot-button issue in Australia for some time. Various factors, including an influx of foreign investors and stagnant wages, have made it more difficult than ever for young Australians to buy their first homes. If you are thinking about buying a home, what will you face while trying to get approved for a home loan? Thanks to new regulations by the Commonwealth Bank of Australia, you may have a harder time than you would have just a few months ago. Due to fears about a cataclysmic housing bubble, the CBA and many other lenders have become much stricter about the mortgage lending process. Even if you can afford to buy, securing a loan may be easier said than done.

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The CBA’s New Guidelines

Citing concerns about skyrocketing home prices, the CBA recently put more stringent lending rules into place. Most notably, the bank will now perform stricter background checks on Australians trying to secure loans to buy real estate. The hope is that this will reduce the number of people who qualify for such loans, which will theoretically help make prices level out. Among the new guidelines that have been put in place, the new servicing loading requirement is probably the most concerning to first-time home buyers in particular. Prospective buyers now must show they have the ability to repay a loan equal to 20 percent more than the amount they are requesting. Also, prospective buyers’ incomes and debt loads will be assessed much more thoroughly.

Skyrocketing Home Prices

Even if your credit is in excellent shape and the CBA’s new rules won’t affect you, can you afford to buy real estate in Australia in the current climate? Moreover, should you? If you are an investor looking to cash in on the red-hot market, proceed with caution. Many experts, including housing economists Philip Sous and Lindsay David, believe that there is currently a bubble and that it’s going to burst before too long. If and when that happens, home values could plummet, leaving investors in a very bad position.

New Loan Application Fees

Despite the fact that household debt in Australia has nearly tripled in the last 25 years, home values continue to soar. Foreign investors — particularly from China — are largely to blame for the phenomenon. In a supposed effort to reduce the number of loans being approved for such investors, a new application fee has been introduced. However, the fee — $5,000 on properties worth $1 million or less and $10,000 for properties worth more than $1 million — is really a pittance to investors who can afford to buy expensive properties in major markets like Sydney and Melbourne, so it’s unlikely to do a whole lot.

Lackluster Economy Complicates Matters Further

Finally, the Australian economy as a whole is making it more difficult than ever for many to be approved for home loans at this time. Economists believe the Australian dollar will most likely keep falling in value over the next year, and the unemployment rate is the highest it’s been in more than 10 years. With the median house price in Australia currently around $660,000, it’s little wonder that so many are struggling to buy real estate. Unfortunately, it appears that the real estate market will continue to benefit investors — especially foreign investors — while leaving home buyers in the lurch.

Home loans for off-the-plan investments

Buying off the plan can be a great move if you know what you’re doing.  Property growth (especially in the property bubble we’ve been seeing recently) can mean by the time the property is built, your property is already worth hundreds of thousands more before you’ve even paid for it.

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Off the plan home loans are a bit trickier, though, as some banks are reticent to give you a loan in advance before the value of the property is known, or the likelihood of the project falling apart proves too much of a risk.

Deposit

Typical off the plan properties require a deposit of around 10%.  This will usually come in the form of a bank guarantee, but others require a deposit bond or cash.

Rising Interest Rates

Knowing what your repayments will be like is good research, but be mindful that the interest rate now might not be the interest rate when the project is complete.  Have some estimates around a fluctuating interest rate to give yourself an idea of what your capabilities are like.  There’s nothing worse than a surprise interest rate jump to price you out of your new property once you’ve already committed to buying it.

Tax Advantages

Depreciation claims in the first year of an off the plan investment can typically range between $8,000 and $14,000 depending on your property.  If you’re settlement is 12 months or more before the development is finished, you may be eligible for a 50% capital gains tax exemption with the ATO>

Stamp Duty

Different states have different laws on stamp duty exemptions.  Look to your state’s information on whether or not you can save on having to pay stamp duty on your off the plan property.  Currently, Victoria, NSW and South Australia have concessions for off the plan properties for their stamp duty.

Bankruptcy

With the property not actually built, there’s always a risk that the company could go bankrupt.  If the project just falls apart, you will get your deposit back.  If the company goes bankrupt, there’s a serious chance you might not. Research your potential development company to see their track record to give yourself some peace of mind.

Time

When buying off the plan, you have the added luxury of time.  The mortgage doesn’t have to be organised straight away.  If you’re planning on being the owner occupier, you have a much easier time in selling your place, with a fixed date in mind.

You also have the added period to save money.  If it’s going to take 18 months to build, that’s an extra 18 months you get time to save towards a mortgage deposit or an offset account.