Buying a home is a dream many young people share, but it can be hard in a country like Australia where the median price hovers around the whopping the $658,608 mark. Borrowers are typically expected to put down a deposit of between 5 and 20 percent of the purchase price in regular circumstances. At the median home price, a minimum deposit of 5 percent will still cost you around $33,000, which is separate from fees like stamp duty, solicitor fees, agent fees, inspection fees and bank loan fees. Here are some efforts to help you build financial equity for your first home.
Set A Realistic Budget For Purchase
While you probably have a dream to live in a large home with ample space, it's going to cost you some big bucks in Australia, which you simply may not have now. Instead of living beyond your means, it may be a good idea to work with a financial planner who will asses your current financial situation before helping you arrive at a figure of how much you can borrow without overstretching yourself. Keep this figure in mind when you start looking at houses to buy, and avoid going over it for your own benefit.
Plan To Pay A Bigger Chunk Of The Deposit To Negotiate Better Interest Rates And No LMI
Keep in mind that a bigger deposit will allow you the flexibility to negotiate a better interest rate from your lender. For example, a borrower with a 20 percent deposit will likely get a few percentage points shaved off from the interest rate than a borrower with just a 5 percent deposit. Similarly, a 20 percent deposit will eliminate the need to take lender's mortgage insurance (LMI), which often accounts for thousands of dollars in costs. The more you have as a deposit; the better is your negotiation power with your lender.
Eliminate Your Liabilities By Making Lifestyle Changes
If you have existing liabilities like student loans and car loans, it's probably best that reduce them as much as possible before applying for home finance because they could hamper your efforts to get a lower interest rate. When saving for a new home, you may have to make some lifestyle changes like cooking instead of eating out. Similarly, consider drinking coffee at home instead of at a café where the average price is $3.43 in Melbourne and $3.34 in Sydney. Over a month, your cost for coffee every day will be $102.9 (3.43 x 30). Now imagine those savings if over a few years when you're budgeting for your home.
These efforts are designed to help you build good financial equity for a home loan.