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Squidy

Home Loan advice

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Hi all,

 

Need some help/advice.

 

I've just turned 33 and my gf has just had her 30th. We've been wanting to get a house etc and she's 30 so she wants to start thinking of having kids, why she'd want kids with me is beyond me, but that's another story.

 

I said I'll have kids eventually but I want to have a house first etc (don't want to rent if we'd have to keep moving due to houses being sold or whatever).

 

Now, I work 40 hours a week and my pay isn't good (at all) although I'm looking for a better paying job. I've checked how much I could loan from a bank and it came to around $280k. Mind you, that's a 30 year loan and I'd be paying it off when I'm 63 which honestly worries me. But, as I said, I don't plan on earning this much for the rest of my life and I'm looking into furthering my career (or changing to a new one completely).

 

Now, my gf is a personal trainer (yes, I'm still fat, but she's still hot, so it's all good) and she works a "minimum" of 13 hours a week, however when she works any more than that she'd make a killing. She does 13 hours of floor shifts (at an incredibly dismal hourly wage) but anything she does after that is classes or personal training and gets paid pretty well.

 

My query is, due to my lower income and her lower hours do we have a hope in hell of getting a loan for a house? I'm just worried when we go for a loan they won't take her income into account due to the fact she's only guaranteed 13 hours per week, but anything over that is purely up in the air. She can do classes etc but when she's doing personal training it's not uncommon for them to cancel their session etc which means she doesn't get paid at all for it so I'm worried the bank will see her (rightly so though I guess) as only working 13 hours per week.

 

As I said, she's trying to build up her client base etc and I'm looking into getting a better paying job, but with her wanting kids etc I'm worried time is quickly running out.

 

Anyone been in a similar situation? got any advice?

 

Cheers,

Edited by Squidy

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We've been looking at whether we can afford to buy a place as well, but we haven't actually gone through the process so my advice may not be on the ball. I understand that as well as your actual income, the banks also look at your savings - how much you've got, and how much you've been saving per year/month etc. So even if her hours are all over the place, if she's still bringing in enough on average to save a decent amount, that should be OK.

 

On housing prices, they're going down a bit at the moment, so maybe in a year or so they'll be a bit better? That's the impression I get from the real estates agents I know, anyway.

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I'd be heading off to see a financial advisor. Take all the facts and figures with you and lay it all on the table.

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Don't sweat the 30 year period, that is quite standard.

 

I would suggest spending a little extra and get a broker you trust. When are you? I have one in sydney who is very good. They will deal with the lenders and can usually get a better rate/conditions for you. Also a broker (get one who is not attached to a particular lender) may be more realisitic as to what you can afford right now. Never get a loan have is too much now because it will be ok when you are earning more. What if you don't earn more soon or have an accident etc.

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Banks basically want to see evidence of the ability to save, and ability to service the loan, ie make repayments without problem.

 

So the most important things are:

 

1) A good amount of savings over a period of 2 years - and the more savings you have, the less you need to borrow, which will make it easier to get a loan.

2) Work out what the monthly repayments would be using a loan calculator, and see if you guys can make the payments and have income to spare.

3) Get rid of as many credit cards as you can. The banks will just look a the card limit, and assume you're paying of the max.

 

Some other considerations are:

 

- get an offset loan, so you can both use the offset account as your personal savings account, both incomes and all other money goes into that. The fixed loan repayments are taken out automatically each month, but, the higher offset balance, the less interest you will be paying. Chuck all your money in there...the loan rate is better than any bank deposit interest rate, so you're better off putting any money you have in the offset account, and it will be working harder for you than any savings account. So if you and/or your gf earn more some weeks, or get a bonus, tax back or whatever, put it in the offset account, as it will reduce the interest. You can still draw money out of the offset so its not like its gone into the loan and unable to be accessed anymore.

 

You won't be paying out that loan after 30 years. The average loan payout I read somewhere was like, 5 years....but that is including re-financing. If you are smart (and lucky) with your house purchases over the years, and you step up in loan size and money made from selling previous houses, you can get to the point where you can simply sell and pay off the loan, and have plenty of savings still left.

 

Having a loan with equity in it gets you lots of opened doors....re-financing ability, so you can use the loan to obtain money for renovations, an investment property maybe..

 

Just make sure you have enough spare income coming in after the loan repayments have gone out. Its not good to be asset rich but cash poor. I forget what the ideal or recommended percentage of loan repayments/income is, but many Australians are paying a huge percentage of their income back into the loan...which can make things tricky like if you want to go on a holiday, or need some medical expenses...

 

EDIT: The broker idea is a good one. We use a Mortgage Choice guy who has bent over backwards for us in the past, helping us, and we have grown into a nice friendship. Now when we have any financial questions we turn to him, and even though he is technically not alllowed to offer financial advice in a professional capacity, he always says "this is what I would do", and lays out the facts. We have observed him carefully, and found him have been on the money with his calls, and choices all the time.

Edited by Antraman

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I'll give you a rundown on what I had done, and hopefully this can help you.

 

*disclaimer* whatever I say here is only to be taken as my opinion, you would need to make up your own mind.

 

Firstly, here are some of my tips

 

- create a budget and work out close to the dollar, what you require to sustain month to month living.

- ensure that you are able to at least pay off your minimum mortgage repayments in the even interest rates are +2-3% the current.

- start low, aim high. Once you know at you want to achieve in the property market, you can play your strategy around that.

- get rid of all credit cards and reduce overall limit to as low as possible

- dont apply more that 2 times in a row to any home lender in the event your get declined. This can hinder your applications

- speak to your banks free financial advisor.

- try not to borrow more than 90% LVR

 

Now, to my story.

 

I started off with a 45k salary and 10k in my bank account. Partner was not working, but we had a 8 month old child.

 

As we were first home buyers, I decided to look for a property, that will allow me to borrow 90% with the funds I had on hand. if you pass this point, LMI will be a big kick in the arse.

 

With the job I was in, I knew my salary was to increase and my partner would eventually get to work. So my choice of place was a 2br unit within 15km of the city, that I knew from past growth figures, will net me good profit when I was ready to sell. My first homes purchase price was 280k.

 

Fast forwarding to now, 3 years on. I have just recently sold my unit for 375k and with the money, was able to refinance my loan and purchase a house worth 580k. All with very little effort of saving up.

 

If you play your cards right and research. You can play it smart and own a house with no issues.

 

I'll edit later with links that helped me out.

 

Rob

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I really could not put in anything new to what has already been mentioned here from my experience, but I will list them out in the spirit of re-enforcing them if that makes taking the advice any easier:

 

1. Get a budget together so you know how much you can put aside for payments, work out a rough ceiling of how high you can go before you have to start cutting back with your current average expenditure. Counting on things getting better financially is a bit risky and if they do get better you can always throw more money at it.

 

2. Start saving as much as you can to show that you have a consistent history of saving and a reasonable amount as a deposit, also so you don't have to try and borrow the full amount which doesn't always look so good.

 

3. Do some basic research of where you would like to buy and get a feeling for what you want in a place and how much that costs. No point in getting the money and then having to do your shopping and then finding it was not enough. I have no idea how the housing market is operating where you are, you may need to talk to people in the business.

 

4. Talk to a person specialising in home loans like Aussie Home Loans, Mortgage Choice or some other broker. They will be able to look for better deals than just the banks and make a better fit for you and your circumstances.

 

5. Aim small, your first home is generally not the place you will spend the rest of your life in. There are going to be cons and it's a matter of weighing up what you can live with or without. You might not even need a house and say get a detached town house with 2-3 rooms for a lower price. Be flexible as you are going to be throwing around a lot of money. And if the place isn't perfect you can always fix it up how you like as you go.

 

6. You might even want to engage specialists to do house price negotiating if you do find a place and get the loan if you are not good at haggling. Paying the up front price is never a good idea but also don't go in expecting a massive deal.

 

7. If you have recently changed jobs you may need a few years at the company to show you have a stable employment history and a regular pay which will mean you can afford the loan.

Edited by Rion

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***THIS IS ALL FROM MY OWN HOUSE BUYING EXPERIENCE - INCLUDING THE GOOD FORTUNE OF KNOWING MY BANK MANAGER PERSONALLY ETC***

 

Antraman's advice is as good as you'll ever see on the internet. Also, 30 years is normal, don't sweat it. The first house is only ever the first rung on your journey, not your last.

 

Speak to as many bank loan managers as you can. The good ones will act as semi-advisors in that they can give you the basic advice for the basic questions you have - though do bear in mind that they are trying to sell you a product. If you need more expansive or in depth advice, then a broker might be called for.

 

My borrowing was relatively easy - we had saved our arses off for 6 months and had a good pile of money, owed nothing to anyone, had only a $2000 limit credit card, it was during the $14,000 bonus for first home buyers and were both working full time.

 

I'm not sure if anyone else mentioned it, but pay your loan off fortnightly. Can't stress that enough. F.O.R.T.N.I.G.H.T.L.Y.

 

When you make a budget for borrowing (I used the Commonwealth bank's rather excellent calculator, budget if one of you lost your job, or broke a leg, or became pregnant), make sure you make multiple contingency budgets, from each of you earning as much as possible in a best case scenario right through to the very worst imaginable, and make sure you can manage that. We budgeted for rates going to 15%, had become single income, and worked from there when deciding what to do and how much to do it with.

 

Don't be afraid to bargain with the bank either.

 

And even though house buying and loan bargaining is really fucking trying and occasionally stressful, do remember you are buying a house with your loved one. It should be a fucking fun and enjoyable experience, not completely weighed down by money-this, can't afford a latte-that attitude :)

 

As for the house bit, man oh man, that is another thread worthy of advice. 'Worst house in the best street' is probably the easiest to leave here though :)

Edited by elfinke

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I'd be interested to hear how much people had saved up when they bought their first place, and how much it cost. I know some people advocate getting a loan and into a property as soon as you possibly can (rent is wasted money etc), but I've always been the kind of guy who prefers to wait a bit longer and save a bit more.

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I'm not sure if anyone else mentioned it, but pay your loan off fortnightly. Can't stress that enough. F.O.R.T.N.I.G.H.T.L.Y.

This is an incredibly valuable piece of advice and something that many bank managers will not tell you, (for obvious reasons).

 

Paying your mortgage fortnightly, (instead of monthly), reduces the term of your 30-year loan to about 15 years, without you having to pay any extra payments over that time.

Edited by Blind_Faith

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I'd be interested to hear how much people had saved up when they bought their first place, and how much it cost. I know some people advocate getting a loan and into a property as soon as you possibly can (rent is wasted money etc), but I've always been the kind of guy who prefers to wait a bit longer and save a bit more.

The people who say rent is dead money or whatever make a good point.

If you rent for 20 years, and aren't saving for a property, then you probably blew it on things.

 

However, there are two factors at play:

Opportunity cost and saving a deposit before you buy.

 

If you don't have a deposit, then you might have to fork out for loan insurance (which covers the bank, not you). And you'll pay more.

If you are paying more, then your loan will go longer, and cost you more.

Every year of your loan, you are paying interest on the total principal of the loan.

 

In credit card terms, if you borrow 440,000 rather than 400,000 over 10 years, then you might have been better off paying rent while you saved $40,000.

 

People don't want to hear that, they want to buy a house now.

Which is why the first home owners grant was such a bad idea.

 

Buying a house shouldn't be impulse. It shouldn't be spurred on by the possibility that a grant might be removed at the EOFY. Those kind of snap decisions are what caused a massive increase in the number of court ordered reposessions last quarter increased massively (it had been falling since the GFC). Rent money might be "wasted" from some perspective, but it can give you opportunities, buy you time, reduce the cost of your mortgage, and let's face it. The loss you face in rental, is nothing compared to having to declare bankruptcy if you lose your house and it doesn't pay off your loan at auction.

 

Which is why the first home saver is phasing out the first home owners grant. You save up for four years, with government assistance, and end up with a decent sized deposit that will help you STABLY acquire your first home.

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I would say that the advice to talk to as many bank advisors as possilbe as a waste of time. They each have access to a small number of loans they are trying to actively sell you. Avoid confusion, wasted time and stress by engaging someone paid by you not by the lender.

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Banks have a propensity to lend people more than they can realistically afford. After all, the risk is all yours... If you default on the loan they sell your house and get their money back. They win either way. And the bigger your loan, the more they win.

 

So treat their estimates of 'what you can afford' with scepticism. I personally got a mortgage for about three-quarters of what they told me I could afford, to ensure I had some buffer. And then I personally renovated my cheap and shitty first house, and sold if for double what I paid for it, to raise my stakes for the next mortgage.

 

Other than that, TinBane's advice is the same advice I would give you.

 

My other observation is that you don't seem very committed to having kids... something which is a HUGE responsibility that will change your life in ways you need to have thought about very carefully in advance. And many of those changes you will see as BAD. So I'm a little worried that your whole premise for buying a house is pretty shaky to begin with, to be honest.

Edited by Virtuoso

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I would say that the advice to talk to as many bank advisors as possilbe as a waste of time. They each have access to a small number of loans they are trying to actively sell you. Avoid confusion, wasted time and stress by engaging someone paid by you not by the lender.

It's not a waste of time for basic questions, if you have a level head. Certainly in my experience I was able to work out the shonks from the not shonks. I was able to get an idea of the different angles each was trying to push. And because I was actively shopping around and broadcasting that to each of the banks I visited, I was looked after considerably well. Treated like a first class citizen. Of course, I spent considerable time doing all of this, so for some people it may not be worth it, and they'll just throw their hands up in the air and have someone else do it.

 

That wasn't for me - I wanted to be in the trenches. Fuck having yet another goddamn person getting involved in what is already a stupidly protracted and overly fussy matter.

 

But as I prefaced earlier, that was my experience. Horses for courses. My best mate paid for someone to do all that for him and was happy with the result.

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I'm not sure if anyone else mentioned it, but pay your loan off fortnightly. Can't stress that enough. F.O.R.T.N.I.G.H.T.L.Y.

This is an incredibly valuable piece of advice and something that many bank managers will not tell you, (for obvious reasons).

 

Paying your mortgage fortnightly, (instead of monthly), reduces the term of your 30-year loan to about 15 years, without you having to pay any extra payments over that time.

 

I have just flicked through the thread so far, but this stood out as insane so I just thought I'd point that out.

 

This is insane. Completely and utterly batshit insane and completely wrong.

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It's not that I'm not committed to having kids, it's just that I don't want to have them and then put them in limbo with a home loan we may not be able to afford. I don't want to bring kids into the world and not be able to provide for them etc.

 

Also, me being 33, if i save til I'm 37 etc isn't that leaving it too late?

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I'm not sure if anyone else mentioned it, but pay your loan off fortnightly. Can't stress that enough. F.O.R.T.N.I.G.H.T.L.Y.

This is an incredibly valuable piece of advice and something that many bank managers will not tell you, (for obvious reasons).

 

Paying your mortgage fortnightly, (instead of monthly), reduces the term of your 30-year loan to about 15 years, without you having to pay any extra payments over that time.

 

What?

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I'm not sure if anyone else mentioned it, but pay your loan off fortnightly. Can't stress that enough. F.O.R.T.N.I.G.H.T.L.Y.

This is an incredibly valuable piece of advice and something that many bank managers will not tell you, (for obvious reasons).

 

Paying your mortgage fortnightly, (instead of monthly), reduces the term of your 30-year loan to about 15 years, without you having to pay any extra payments over that time.

 

Not if you have an interest-only loan. I'll explain why in a moment.

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I'm not sure if anyone else mentioned it, but pay your loan off fortnightly. Can't stress that enough. F.O.R.T.N.I.G.H.T.L.Y.

This is an incredibly valuable piece of advice and something that many bank managers will not tell you, (for obvious reasons).

 

Paying your mortgage fortnightly, (instead of monthly), reduces the term of your 30-year loan to about 15 years, without you having to pay any extra payments over that time.

 

I have just flicked through the thread so far, but this stood out as insane so I just thought I'd point that out.

 

This is insane. Completely and utterly batshit insane and completely wrong.

 

Every bit of advice I was ever given, from brokers, to accountants, to family members with portfolios that make my head spin have told me this much - for my particular circumstance (same as all the words I have written in here). This tiny paragraph lays it out in slightly more in depth reasoning, (first result from a google "I'm feeling lucky" too!)without going into in depth amortisation reasonings or interest only repayments or so on and so forth. There are countless other forums that can do that.

Edited by elfinke

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I'm not sure if anyone else mentioned it, but pay your loan off fortnightly. Can't stress that enough. F.O.R.T.N.I.G.H.T.L.Y.

This is an incredibly valuable piece of advice and something that many bank managers will not tell you, (for obvious reasons).

 

Paying your mortgage fortnightly, (instead of monthly), reduces the term of your 30-year loan to about 15 years, without you having to pay any extra payments over that time.

 

I have just flicked through the thread so far, but this stood out as insane so I just thought I'd point that out.

 

This is insane. Completely and utterly batshit insane and completely wrong.

 

Every bit of advice I was ever given, from brokers, to accountants, to family members with portfolios that make my head spin have told me this much - for my particular circumstance (same as all the words I have written in here). This tiny paragraph lays it out in slightly more in depth reasoning, (first result from a google "I'm feeling lucky" too!)without going into in depth amortisation reasonings or interest only repayments or so on and so forth. There are countless other forums that can do that.

 

My statements were in regard to this part, that you didn't say: "reduces the term of your 30-year loan to about 15 years, without you having to pay any extra payments over that time."

 

I agree that fortnightly is better. But that's complete nonsense.

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I'm not sure if anyone else mentioned it, but pay your loan off fortnightly. Can't stress that enough. F.O.R.T.N.I.G.H.T.L.Y.

This is an incredibly valuable piece of advice and something that many bank managers will not tell you, (for obvious reasons).

 

Paying your mortgage fortnightly, (instead of monthly), reduces the term of your 30-year loan to about 15 years, without you having to pay any extra payments over that time.

 

I have just flicked through the thread so far, but this stood out as insane so I just thought I'd point that out.

 

This is insane. Completely and utterly batshit insane and completely wrong.

 

Every bit of advice I was ever given, from brokers, to accountants, to family members with portfolios that make my head spin have told me this much - for my particular circumstance (same as all the words I have written in here). This tiny paragraph lays it out in slightly more in depth reasoning, (first result from a google "I'm feeling lucky" too!)without going into in depth amortisation reasonings or interest only repayments or so on and so forth. There are countless other forums that can do that.

 

My statements were in regard to this part, that you didn't say: "reduces the term of your 30-year loan to about 15 years, without you having to pay any extra payments over that time."

 

I agree that fortnightly is better. But that's complete nonsense.

 

Yeah, 30 > 15 is slightly optimistic.

 

OT: Damn, Andrew Bolt is a cunt and makes me angry >:/ But like a bad drug, I can't stop reading his ramblings and I miss him from Insiders only because he made me rage on a Sunday morning.

/OT

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Yeah, 30 > 15 is slightly optimistic.

Heh, yeah. 30 > 25 is optimistic. 30 > 15 is batshit fucking insane!

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We pay ours weekly. The more frequent your payment is, the less interest you will pay, since interest is compounded daily - charged monthly.

 

We also chuck in $50 a week extra, we don't miss it.

Edited by SquallStrife

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Also, me being 33, if i save til I'm 37 etc isn't that leaving it too late?

I did, and I now wish I'd done it sooner. So yes, I agree with you... as long as you've really thought about what it's like to live your life for someone else other than yourself.

 

Having kids has many rewards. But it comes at a big personal cost too, which people don't tend to talk about.

 

I'm totally happy with my decision. But I still want to help others go in with their eyes open :-)

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