Buying your first property

Buy a home or buy an investment property? It’s a question many Australians ask themselves.

Should you buy to invest?

Faced with escalating real estate prices in many of our capital cities, owning an investment property is becoming a more common way for people to take a first step into the bricks and mortar market. 

Often it means you can purchase in an area that you might not want to live, you can buy something that might not quite fit your needs in terms of size or amenities and, of course, there is the added benefit of having someone live in your property and help you pay the mortgage.

Starting out as an investor may also mean you might be eligible to claim the ongoing costs of a rental property as a tax deduction.

Recently, the Australian Prudential Regulation Authority (APRA) has capped the proportion of loans that major lenders can offer to investors. See the APRA website for more information.

This has seen some budding landlords pay higher rates of interest for a mortgage compared to owner occupiers as a result of recent interest rate rises by the banks.

Speak to your tax adviser about how purchasing an investment property could affect your individual circumstances. 

Or should you buy a home to live in?

Plenty of younger Aussies are deciding to stay at home with mum and dad longer, which could mean not paying rent or paying nominal board. Meeting the loan repayments while you live in the property, as well as the upfront costs of purchasing a home may be a harder slog financially. However, in the long-term, provided you meet every repayment, you are one step closer to fully owning a home.

It’s important to consider the costs related to moving out of home, which will include taking care of ongoing costs such as mortgage payments, grocery bills and utility charges. There are also one-off costs such as removalist fees or the costs of hiring a truck; connection fees for utilities like the internet, gas and electricity, and cable television. You will also probably need to buy some furniture, linen and kitchenware. It all starts to stack up, so before flying the coop, you may wish to create a budget to make sure you can afford to live independently.

How to save for a deposit

Saving for a property is an exciting goal. A budget can help manage your spending and a regular savings plan can assist you in growing your deposit. 

The easiest way to see where you can cut back is by drafting a budget.

A budget should show you how much you’re spending and where you might be able to save money. A thorough budget, for instance, will include your essential costs, such as rent, bills and food. Subtract this amount from your income and the difference can be put towards a deposit. Cut back on the non-essential spending and you’ll be able to fast-track your savings. If you’re not sure where your money is spent, check out ASIC’S Money Smart TrackMySPEND app for a month to see where you are spending your cash.

Be careful not cut all your fun from your budget. Doing this will make it harder to your budget. The reason many budgets fail is that they are unrealistic. Set some smaller savings milestones and reward yourself when you achieve them.

Also don’t forget if you can save a deposit worth more than 20% of the value of your property you generally are not be required to paying Lenders Mortgage Insurance (LMI). LMI is generally charged by a lender if your deposit, is less than 20 per cent of the value of the property.

LMI enables lenders such as a bank or a credit union to lend you a larger percentage of the purchase price. The cost of LMI can be included either upfront or in your loan repayments so that it’s spread out over the term of the loan.

It’s possible not be required to pay LMI by having a person who is willing to be the guarantor for your mortgage. Of course, the guarantors have to be confident that you’ll be able to meet your mortgage obligations before they provide the guarantee. Otherwise, if you default on your mortgage, they will be become responsible for repaying the loan.

Saving through your super

In the 2017/18 financial year Australian Federal Budget, the Government announced a proposal to help first home buyers save towards a deposit. If the Government passes legislation to enable this proposal, you could consider building some of your deposit inside your superannuation. Visit the Budget website to find out more about the proposed First Home Super Saver scheme.

What can you afford to buy?

Let’s be realistic. Owning a mansion in Melbourne’s Toorak or a harbour frontage in Sydney’s Watsons Bay might be a bridge too far for most first home buyers.

Use the Westpac mortgage calculator to work out how much you can afford to borrow.

Understanding the costs of buying/selling a home

The costs of buying a home can include stamp duty for the property transfer and for the registration of your mortgage.

Stamp duty is charged by state and territory governments so the amount you pay depends on the location of the property and its price. To find a stamp duty calculator relevant to your state or territory visit the Federal Government’s Money Smart website. Be aware that some states and territories offer concessions to first home buyers; generally the concessions are limited to first home purchases under a certain cost.

The cost of buying a property can also include pest and building inspections. It’s an extra expense but it could save you from hidden (and potentially costly) surprises after you’ve signed the contract of sale.

There are also legal costs for the transfer of a property from a vendor to a buyer. Most people will need the services of a conveyancer or solicitor to professionally and legally transfer ownership of the property you are buying. Your conveyancer or solicitor will also conduct property and title searches to ensure the seller is legally entitled to sell the property.

There may be a range of fees levied by your lender such as application, valuation and settlement fees. Make sure you ask your lender or mortgage broker about these fees. You might also be required to pay for LMI, as well as building and contents insurance. 

How much can I borrow? How does a mortgage work?

A mortgage is a legal agreement between you and a lender that enables you to purchase a property without paying the entire cost of the property upfront. The value of the property is used by the lender to secure the mortgage and, over time, you’ll repay the loan, plus interest, until you eventually own the property outright.

To work out how much you can borrow, you can use the Westpac mortgage calculator, which can give you an estimate of what you can borrow. Please note that the calculator is not intended to be relied on for the purposes of making a decision in relation to a financial product. You should consider obtaining advice from a financial adviser before making any financial decisions.

Once you know your home loan borrowing power you'll have a better idea of what your next step will be. You’ll know the type of home you can afford and possible locations.

Finding it hard to buy into property? Financial advice can help

Financial advice could help you achieve your real estate goals. It can provide the comfort that your financial plans are achievable. If you’re not on track, financial advice can help steady the ship and get the right strategies in place to help you achieve your property goals.

Financial advice can help you:

  • Make the most of your money with some sound advice around budgeting and establishing savings plans 
  • Understand any government assistance you may be eligible to receive such as the First Home Owner Grant 
  • Protect yourself and your assets by matching you to the appropriate insurance cover.

Next: Using your superannuation to save for your first home

First home buyers can use their superannuation to save for their deposit using the First Home Superannuation Savers Scheme. Find out how this works.
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This information is current as at 4 July 2017. 

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. 

This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis.  There will be tax consequences if you breach these caps.  For more detail, speak with a financial adviser or visit the ATO website. 

Any tax considerations outlined above are general statements, based on an interpretation of the current tax law, and do not constitute tax advice.  The tax implications can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser. 

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