First home buyer myths busted!!
Everyone appears to be an expert when it comes to property, spouting off one phrase after another and impacting the decisions of would be first home buyers. So just what is truth and what is myth?
You need to reduce your debt first or be debt free!
BUSTED! Being debt free and reducing debt certainly helps your position, and can make your new mortgage more affordable, but you certainly don’t have to be debt free. Most first home buyers have at least some minimal debt. The key here is to make sure you do not over burden yourself.
If you have a mountain of unsecured debt then a debt reduction strategy should certainly be considered, or perhaps a consolidation might be the answer. Our mortgage brokers can help guide you on how to restructure, minimize or consolidate debt and help with your budgeting and affordability assessments to make sure you’re on the right path.
Parental guarantees are no longer available
MYTH! Many lenders still offer parental guarantees – in fact some even allow friends and other family members to provide a security guarantee. It’s important to understand that a security guarantee is for equity only and the lender doesn’t take in to account the guarantor’s income when assessing how much you can borrow.
For more info on guarantors, check out our recent article; How Can I Help My Kids Get In To Their Own Home?
You need a 20% deposit to buy your first home
FALSE! Another myth busted. Whilst this certainly opens up more doors, gives you access to better offers and makes assessment policy easier – it’s not the only way. What many are referring to when they say this is that this is generally the point where you are no longer required to pay lenders mortgage insurance (LMI).
There are lenders that will consider as low as 5% deposit – one lender will even consider 2% deposit for low income earners if you meet certain criteria.
Most first home buyers generally start out with 5-10% deposit, focus on paying down the home and then consider more competitive options in a few years down the road when they have a little more equity in their property. That’s where our annual reviews come in handy!
For more info on savings and deposit requirements, check out our article; How Much Deposit Do I Need? Deposits & Savings Explained!
You need to have a good credit rating with no defaults
MYTH! Yes, it’s certainly easier with a cleaner credit history, but what happens if you have a low credit score, defaults or have been bankrupt in the past?
Whilst the traditional banks may be very strict on these types of applications, there are many lenders that have set up shop to cater almost exclusively for these types of scenarios. Yes, they may have higher rates and fees, but often that is better than the alternative. Perhaps you have a number of overdue debts and are about to lose your home – or perhaps you have had credit issues in the past and just want to get back in to your own home.
Whatever the situation, we can often find lenders that are willing to consider these types of applications. Some of them may require a larger deposit – but then there are some lenders that still go to 95% for these higher risk applications.
If you’re struggling with bad credit check out this article; I Have Bad Credit – Can I Still Get a Home Loan?
You need to be with your employer for 3, 6 or 12 months and must have completed probation.
BUSTED! Perhaps for most lenders this is the case, but there are a few very well know and major lenders that simply have a policy based on previous employment history rather than current job status. They take it on face value that if you’ve been in the same job for the last 2 or 3 years and have just changed employers, chances are you’re either going stay where you are or be highly employable should you have to leave again.
There are even lenders that can consider applicants on probation and on day 1 of employment – I’ve actually had applications approved before the client even started their new job! They just requested to receive 1 payslip prior to settlement and everyone was happy!
Want to know your true borrowing power? Check out our True Borrowing Power Calculator
It’s cheaper to rent
This one isn’t straight forward, after-all when you own your home you are responsible for maintenance, rates, strata levy’s and all the other associated costs. Additionally, markets do fluctuate – during the property cycle there will be a period where the rental market is slowing down any you can find bargains, other times the sales market could be down and property selling well under traditional values. The real cost of renting however is in the simple fact you are paying off someone else’s mortgage. So, paying $300/week rent over 30 years would be a direct cost with no return of $468,000 – this is of course assuming rent does not increase. But that is unlikely, and your rent will likely increase anywhere from almost nothing to several times your initial rent. Hey – you could get lucky and it goes down! But more than likely it will go up meaning that 468k is suddenly over a mil you’ve spent on rent over 30 years. That is money you will never get back!
Like-wise a mortgage on a similar property, let’s say a $350,000 purchase price at 5% over 30 years come to about $525,000 in repayments. More expensive – possibly, but assuming you get no capital gain at all, which over 30 years is uncommon, then you’ve got an asset worth $350,000 – so you’ve only really lost $175,000 that you can’t get back – plus possibly another $50-100,000 in maintenance, rates and so on. But better yet, you no longer have to pay rent- EVER AGAN! Of course, rates could go up changing the final outcome, but so too could the value of your property (historically property goes up dramatically over a 30 year period), whatever the outcome at least you own something at the end of it all.
Almost everyone has an opinion when it comes to property, whilst it can certainly make great weekend BBQ conversation, just be sure to do your research. Your mates could be right, or they could be way off the mark – so before you let someone else’s opinion shape your thoughts or effect your actions – do some research and make up your own mind. It’s great to get advice, just make sure the advice is the right fit for your goals and always speak with a professional to get advice before you make any decisions.
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