When it comes to fuelling debate around home ownership in Australia, few can match the discussion that followed property writer Emily Power sharing that at age 33 her parents were managing her finances to help her save a deposit for a property.
It attracted significant commentary because she admitted that she had needed help managing her money, which effectively lead to handing over financial control to her parents.
“My wages are paid into an account controlled by my parents and from that, they hand me $400 a fortnight to live on,” she wrote in her blog.
“By choice, I am not aware of the bank account number or passwords, so there is no temptation – or ability – to get my hands on my money, beyond what is rationed to me.”
It seems to be a dramatic method of saving, but for the self-confessed luxury spender, it was an effective plan. Since then, Emily has gone on to provide sound guidance online and in her book – How to Buy a Home. From debt to deposit.
In her writing, she provides sage advice on saving for a deposit beyond the typical suggestions such as cutting back on take-away coffees and turning the power off at the wall.
The hidden danger of credit card debts
Of course, high on the list of her savings tips is to cut personal debt. It was a lesson learned from personal experience when she discovered that often mortgage lenders assign a value of up to 300% to credit card debts. This means that if you have $10,000 in credit card debt, banks may be willing to lend you $30,000 less for a home loan.
“The most surprising aspect was how past behaviour would dictate my future success in getting a mortgage,” she told news.com.au
Reducing a credit card balance is often a matter of assessing potential purchases in terms of needs versus wants and in the era of tapping, going back to using cash to control spending.
Be prepared to shift your focus
The most popular suburbs are often those with the most appealing attractions like popular cafes and boutiques. But usually there’s a similar, less popular suburb just around the corner – literally – and for a much more achievable price.
“Buyers who are priced out of popular suburbs should grab a takeaway latte and go for a day-long drive to neighbouring postcodes – moving further out as budgets suit – because fabulous boutiques and cafes are opening in less trendy areas to cater for the spill over of buyers who are looking for lifestyle at a manageable price,” she blogged.
She also recommends having a discussion with a bank manager or mortgage broker early in the process to get a realistic assessment of what you can afford now. This may be just the motivation you need to crack down on your spending and will provide a solid starting place to launch your savings plan from.
Another piece of advice, but one particularly insightful in the Melbourne market, is to follow those “freakish predictors of the next big thing”: the wise barista often leads the way to the next ‘in’ suburb.
See your real estate agent as a friend
When looking at a property, speak to agents about your financial situation. Tell them what you need in a property, what you would like in a property, and the things you would be willing to compromise on.
“They may not have a home on their books, now, that is right for you,” she says, “But if you can demonstrate that you are a serious buyer, with your finances in order, they will contact you when something more appropriate is listed with them, before that property is publicly advertised. You can get ahead of the pack by being transparent with real estate agents. They are not the enemy.”
Think like you’re already in the market
Research is key, according to Emily: “…get into a buyer’s mindset, even if signing a sale contract is likely to be years down the track. It is a healthy pastime to study the market at regular intervals; become familiar with median prices, which are released four times a year; read the news about market fluctuations…”
Not only does this attitude mean that you are primed and ready to pounce if you discover a bargain, but it also helps to establish savings discipline because the goals are right there in front of you.
Know the hidden costs…
Factoring in the extra costs such as stamp duty and mortgage insurance is vital if you do not want any setbacks down the track.
Each state has different stamp duty schemes, and some even offer discounts on stamp duty for first home buyers, properties below a certain threshold, and homes bought off-the-plan.
A simple Google search will find stamp duty calculators. Crunch the numbers using one from a trusted source.
Registration, transfer, legal and conveyancer fees will also eat into your savings and should also be included early in your budgeting process.
Lenders Mortgage Insurance (LMI) is another sting often faced by homebuyers – especially those who are paying a deposit of less than 20%.
Emily recommends getting professional financial advice, since some professions are seen as low risk and lenders may waive the LMI. At other times, the cost of waiting to save up a 20% deposit can outweigh the cost of the LMI. These are things that a financial planner is best positioned to guide you on.
…and the incentives
If you’re a first home buyer, you may be able to take advantage of certain government incentives. She recommends the ‘one-stop-shop’ of advice at firsthome.gov.au
If you are serious about getting into your first home and need more pointers, Emily’s book How to Buy a Home, is packed with further tips, plans and advice. And it is not only essential reading for prospective first home buyers, it can also be a useful addition to the library of seasoned property entrepreneurs.
How to Buy a Home: from debt to deposit is published by Penguin books and is available in hard copy and as an e-book from Penguin.com.au and Amazon.com.au as well as Dymocks and Readings and other good bookstores.