Want to buy a new house. Should I do it now?

Hi there,

My family moved to Australia only about 6 months ago and we have been renting an apartment in Oakleagh VIC until now paying $1500 per month. With the savings that we brought with us and what I have earned here so far (I have a full time job as a Software Engineer, but my wife does not work as we had our second baby couple of months ago), we have saved up $40,000+ and should be able to make it to $50,000 before the end of the year.

Considering the facts that we are paying about $18,000 a month in rent alone, the housing price inflation and requiring to move farther away to find affordable houses, I feel I should think about buying a house soon. Obviously I want to get the First Home Owner grant, so it has to be a new house or an off the plan house. I'm looking at one in the range of $400000-450000.

But since we are so new to here, we don't have many friends who went through this process in this area. So we don't have contacts.

Where should I start?

1. Do I have enough money to start the process? I understand we will be paying for the LMI but it'll take 1.5 years more for us to get to 20%, and we'd have lost more money for rent. Roughly we can save $1500/month. $2000/month if we are very careful with spending. This is with the Centrelink payments.
2. Should I approach a Mortgage Broker first and discuss what my options are? Or should I start looking for properties first?
3. How do I find a good Mortgage Broker? Any recommendations near where I live?
4. How do I find a good property? Should we start going to open inspections (how to find one?) and probably to auctions (even though we aren't buying from auction) now? I was thinking about Berwick and Cranbourne area. Schools are important. My elder kid starts schooling in 2 years. NBN is important
5. Should I hire a Buyer's Agent because we aren't experienced with the process or familiar enough with the areas that we might want to move to? This is the primary residential property, but we might make it an investment property in the future.
6. If yes, how do I find a good Buyer's Agent ? Any recommendations near where I live?
7. What other parties should I need to get involves? Solicitor? Conveyancer? How do I find connect with them? Will the broker hook them up with me?
8. Realistically, what sort of total expenses am I looking at for the whole process? What sort of concessions are there and how do I do it right so that I don't miss out on them? Would the Mortgage Broker advise me on those things?
9. I prefer to keep at least $10,000 in the bank for emergencies. Which means, we probably might need to wait a few more months to build that buffer, say, build the savings up to $60,000. How else would one protect against financial emergencies? I currently have death, permanent disability and income protection from the super fund (probably need to increase the cover), ambulance cover and comprehensive car insurance. Don't have private health insurance at the moment, but planning to get it next year.
10. Since I only have been here for a short period and my banking records are still fluctuating heavily, would it be hard to get a loan?

I think that is about it. I'm sure I will have more questions.

Hope someone will able to get me on track.

Thanks in advance.

 

Rents are more expensive in Melbourne than I thought

 

Oops. $18, 000 a year.

 

Welcome to PropertyChat!
I am confident that there are many skillful people here in PC to help you out.

I will not have answered to all your questions; however, I will answer some of them based on my experience here in WA.

In general, I have learnt that:

• Buying your very first property as a PPOR, should still be bought with the mindset that you will lease it one day. Therefore try to negotiate an interest only (IO) loan through a broker;
• You should get an investment savvy broker. I have had an excellent broker who managed to get the best interest rate negotiated with the bank but his loan structure pretty much screwed me over to get another property. He cross-secured all properties to get the 3rd property and I did not know enough at the time to stop it.
• A reputable buyer's agent is good from the start if you are planning on increasing your wealth through property. Many in Whirlpool forums would deter you away from paying the additional cost for this service and encourage you to do your own research; however, what I have found myself is that I simply don't have the time to do that as I am a fulltime employee;

1/ LMI is not a bad. Your return with the property growth will pay this off. As long as you can afford the repayments, LMI will help you unlease more buying potential.
2/ Both can happen in parallel; A broker is not necessarily going to suggest you where/what to buy. A buyer's agent will. A broker will however assess your buying power which will help you revise your property searches/affordability.
3/ As mentioned above, an investment savvy broker is definitely recommended;
4/ VIC is in the peak as per the June Property Clock - https://lh3.googleusercontent.com/-...YtuYu76TQqk/s0/chrome_2016-08-02_06-04-05.png and I am unaware of any recent updates to this.
5/ Buyer's Agent can help you out here. You just need to specify him/her your circumstances/requirements.
7/ Yes, the broker will recommend you all the associated parties. If you are buying a house & land package, the developer will recommend you a settlement agent as well. Overtime, you will can go with your best experience.
8/ A good broker will be able to advise you all these.
9/ You are very much covered. The banks will encourage you to have Building & Content Insurance for the first PPOR you are getting.
10/ Leave this up to the broker.

 

Very good info form mcore!

 

Thanks Lewis.

Strangely I cannot edit my own post. I wanted to add:

• Buying your very first property as a PPOR, should still be bought with the mindset that you will lease it one day. Therefore try to negotiate an interest only (IO) loan through a broker. You should look at the potential of value add. You can buy a subdividable property in the future so that you can end up with two IPs!

 

http://htw.com.au/Month_in_Review/MIR-2016/August-2016/Month-In-Review-August_2016_final.pdf

 

Do I have enough money to start the process? I understand we will be paying for the LMI but it'll take 1.5 years more for us to get to 20%, and we'd have lost more money for rent. Roughly we can save $1500/month. $2000/month if we are very careful with spending. This is with the Centrelink payments.

50k will be enough to get going assuming you get a stamp duty rebate.

Should I approach a Mortgage Broker first and discuss what my options are? Or should I start looking for properties first?

See a broker first to determine borrowing capacity, then look for a property.

How do I find a good Mortgage Broker? Any recommendations near where I live? Plenty on here to choose from that now their stuff.

@Peter_Tersteeg is in your area and is tried and tested as he has been a contributor on here for many years. You cant get away with anything on here

How do I find a good property? Should we start going to open inspections (how to find one?) and probably to auctions (even though we aren't buying from auction) now? I was thinking about Berwick and Cranbourne area. Schools are important. My elder kid starts schooling in 2 years. NBN is important. Should I hire a Buyer's Agent because we aren't experienced with the process or familiar enough with the areas that we might want to move to? This is the primary residential property, but we might make it an investment property in the future.

A BA wouldn't be a bad idea but also good to get out there and network as you will learn a heap.

If yes, how do I find a good Buyer's Agent ? Any recommendations near where I live?

@Peter_Tersteeg will be able to recommend one Im sure.

What other parties should I need to get involves? Solicitor? Conveyancer? How do I find connect with them? Will the broker hook them up with me?

Yes, broker will help there as they will be dealing with them daily.

Realistically, what sort of total expenses am I looking at for the whole process? What sort of concessions are there and how do I do it right so that I don't miss out on them? Would the Mortgage Broker advise me on those things?

Yes, broker will help there. Generally its a minimum of 5% deposit and 5% for costs that include stamp duty. If you buy at the right price point your costs will be closer to 1% as you may be entitles to a stamp duty concession or waiver.

I prefer to keep at least $10,000 in the bank for emergencies. Which means, we probably might need to wait a few more months to build that buffer, say, build the savings up to $60,000. How else would one protect against financial emergencies? I currently have death, permanent disability and income protection from the super fund (probably need to increase the cover), ambulance cover and comprehensive car insurance. Don't have private health insurance at the moment, but planning to get it next year.

If you dont pay stamp duty or get a generous concession you will have 10k+ left over that can be placed in an offset account. Buffers are always a great idea and you should look to increase this as much as possible.

Since I only have been here for a short period and my banking records are still fluctuating heavily, would it be hard to get a loan?

If you have permanent residency and credit rating is clean you will be fine.

Make sure whoever you deal with is aware of your short, medium and long term goals as this will determine the current loan structure to facilitate your plans and goals.

All the best and welcome to Australia.

 

Thank you.

How does an Interest Only load help? What I could guess is that since your monthly repayments are low, thus you have a larger capacity to make repayments for a second loan initially, this makes it easy to convince the lender to lend out?

I referred to this. https://www.moneysmart.gov.au/borro...-mortgages/australias-interest-only-mortgages

So, when you say IO, for how long should you go interest only? 5 years? Can this period be changed after you enter the mortgage or is it set in stone? Can you get a P&I and change to IO later, and perhaps change back again?

That's a big question. How do I find such broker? Can you find one online?

I think it is a good idea too, not only because I don't have time, but I don't know what pitfalls there might be and I am worried that we will overlook something very important, which could later turn out to be a serious issue. However, it also means I will need to save this money, which means I won't be able to start without a deposit of around $60,000. (like $8,000 for BA, $2,000 for other legal fees, $10,000 for emergencies, $40,000 for initial deposit, assuming the FHO grant covers the stamp duty, transfer fees and morgage setup costs.)

Is the LMI a fixed amount or does it depend on how much % you are borrowing?

First I guess I should get some idea of how much money I can borrow, hence approach a broker first? Or should I just go with what some of the banks suggest?

What does peak mean from the buyer's POV? Bad time to buy or good time to buy? I guess it means the prices are highest?

Again, finding one would be a challenge for me.

Thank you. I'll read it tonight and ask any questions I might have.

 

Awesome information Colin.

How do I find if I might get it? Should the Mortgage Broker be able to give me this information?

Sweet. I'll get in touch will him.

I know a couple of people from Berwick and another two from Cranbourne. Will contact them and see what information they can give me.

Do these "costs" also include the cost of the solicitor/conveyancer? Or are they separate?

I heard that we don't usually have to pay for the mortgage broker and the lender will take care of it. Is that true?

We will definitely have to pay for the Buyer's Agent though, which could be about $8,000 for a property of $450,000.

When I go into the "savings" mode, I really go into it. haha

We have PR. And I don't have a credit card. So it should be OK.

I haven't put much thought into what my property investment goals are. I probably should talk with the Mortgage Broker about this?

And thank you. Great to be here. There are so many people I know who have moved to Australia, just that most of them are still renting.

 

And @Peter_Tersteeg is a good one, yes?

 

Be careful of "FIMO" fever...

 

Well, it is not exactly "missing out", but I just don't want to the money go into waste as rent, especially if we are in a position to buy a property. If we are not there, I'm sure the mortgage professional will recommend us to wait.

Let's see how things go with him.

 

We Care Conveyancing is a good conveyancer, and they are based in Narre Warren (next to Berwick) and also have a Cranbourne office.

 

Thanks. I'll keep that in mind.

 

@nushydude sorry for my late reply.

With an IO loan, you still keep topping up the loan with repayments beyond interest rate; however, unlike P+I loans, you still have access to that money you topped up and can easily take it elsewhere. The bank does not own this topup. The amount you topup can also be easily managed by you depending on your cash flow. You can keep switching banks until you have finally topped up the entire loan amount, can be 10 years, 20 years or more. When you decide to sell, you can just payoff the loan completely with your topup and move on. You can change from P+I to IO later.

LMI depends on how much you borrow.

Yes, I meant the prices are highest. So VIC appears to be a sellers' market.

Now that you have a broker lined up, I don't have to comment any further about brokers.

Thanks @radson for https://lh3.googleusercontent.com/-...zVTeOW3vrrU/s0/chrome_2016-08-27_06-50-18.png

 

OK, so I talked with the mortgage broker and he says we can only go for a loan of around $330,000. This is mainly due to income (or the lack of it).

We have 3 options.

1. Get a pay raise or switch to a higher paying job.
2. Wife start working. Extra 12K a year would give us almost 100K more borrowing power.
3. Go for a smaller land/house

1st option may happen soon or may not happen soon. 2nd option is not happening soon, with the 2nd baby being only 2 months old.

So it seems we should go with the 3rd option. It is not a big issue, as we were planning to make this an IP eventually. So we don’t really need a 4 bedroom house just yet.

I looked at my options. It seems that we have to go towards Clyde or Officer to find an affordable house. 33km from work place. Still OK I suppose.

And sadly, we might not be able to go with a buyer’s agent, due to smaller budget. But I will talk to one and see what my options are.

What advise can you give me in my current situation?

 

Or buy in tarneit

 

Will probably have to change jobs due to distance, and probably we can go for a bigger loan if I did that. hehe