Suggestions Needed for First Home ~

[WallaceTai]

Dear all,

I've been looking around for buying my first home in the last few months, and I've been reading this forum during the weekends right from the first post, and I really need some insightful suggestions from you guys

I'll give you a little bit background on me. I have absolutely no savings (yes, I do admit I am a big spender) and I spend every cents after I paid rent in the past. I'm planning to get married later in the year, and buying a house is not only a way to get that proud of ownership, but most importantly, it will force me to save (I never skip those credit card/loan payments in the past). My weekly salary is around $900 net, but I do have a personal loan which I need to pay back $150 a week, so you could consider my net weekly income is around $750 (until after I pay back my personal loan).

I've been searching around in domain.com.au and realestate.com.au, and I really love to buy a house/land package or a brand new home; as I don't have to worry about maintaining/fixing the house at least for the 1st 7 years.

After looking around the new houses in Melton area for the last 2 months, I've come up with 3 different price ranges.

Option 1.
Tiny 2BR units in Philip Street with high density living selling around $160K with a building area around 80 sqm and virtually no land no driveway. Mortgage repayment is ~ $300/week.

http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2006882730

Option 2.
Tiny 3BR houses in Melton West (mostly around Roslyn Park Drive, etc) selling around $200K with a building area around 120 sqm sitting on a 300 sqm land. Mortgage repayment is ~ $380/week.

http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2007069866

Option 3.
Proper 3BR/4BR houses (with total building area 200+ sqm) sitting on a 550+ sqm land in major estates such as Botanica Springs, etc. The selling price is usually around $260K to $280K, and thus mortgage repayment is ~ $500/week.

http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2006971707

As I am a first home buyer (not an investor), that means I am going to live in wherever I buy the property for the next couples of years at least (or many years depends on whether I can afford to move to a more expensive area or not in the near future.

Considering Option 1, as I've read that most people buying those tiny units in Philip St are investors, so if I live there, I will probably live with a bunch of low income tenants who will not take care of the property, and thus will affect any possible capital gain in those units (plus the noise from the freeway in the back of the units are not desirable). Also, I can't see myself living comfortably in those tiny units in the next 10 years for sure.

Considering Option 2, as the land is really small (half the normal size), and the building area of those houses are not really any bigger than units, so I wonder if there will be much capital gain in the future.

Considering Option 3, I would love to live in one of those proper size house (over 200 sqm) in a good size block of land (over 500 sqm). But most of those houses will be built by major builders such as Burbank, National Builder Group, Hently, etc; and the cost will be at least $240K and most likely around $270 to $280K if they are located in an estate such as Botanica Springs. Thus the mortgage repayment will be really stressful for me.

While I do not see myself buying my first home primarily as investment (as I am likely to live there for the next 5 or 7 years at least), obviously I don't want to pay so much in Mortgage/Home Loan Interest (compared to renting) and end up there is little capital gain if you know what I mean

The lender is happy to lend me up to $280K, but I have doubt whether I can pay the mortgage back or not. As you know the mortgage broker won't really care if I have to default my home after they get their $$ anyway.

So I am totally confused now ~

A). Should I get the cheapest 2BR unit in Philip ST and try to pay it off ASAP?

B). Or should I go for the $200K tiny house around Roslyn Park Drive and at least I got a tiny little bit of land (even it's only 300 sqm).

C). Or should I start to live like a monk and go for the one I love ~ I mean those 200+ sqm houses in a proper 600 sqm land?

D). or maybe I should just rent for the moment, there are lots of Brand New or Near New 3BR units/houses in Melton available for ~ $220 per week. But I am not so sure whether I could fix my spending habit and save any money , plus the land price in Melton is rising at the moment

Any insightful suggestions will be highly appreciated and maybe from your own experience/mistakes made as a First Home Buyer before?

Thank you very much
Wallace

 

[alexlee]

Wallace, you have no savings. You're going to have to borrow around 100% of the purchase price even with the FHOG and so on. The next interest rate increase, anytime something needs fixing (don't assume new homes don't need fixing: toilets still break, and that's a hundred or more every time you call the plumber out), it'll really strain your resources. Not to mention council rates, insurance, etc that you're not paying right now because you're renting.

In any case, that personal loan is going to hit your serviceability. Am I guessing right that the balance on that thing is about 50, 60k? What do you intend to do to pay that off? Do you know how much you can actually borrow? Your $500 per week on a $260k place, say, is JUST interest. If you go P&I (and in your situation I'd advise it - you don't have the discipline to go IO) the payments would be more like $550pw.

You've never 'skipped' credit card payments. What does that mean? Are you clearing your balance every month?

My advice would be to save first. If you don't, you're running a big risk. Namely that any increase in costs will kick you over the edge.

Also, what's your wife's pay and will she be contributing to this purchase? More importantly, what sort of financial assets and baggage is she bringing into this?
Alex

 

[WallaceTai]

You've never 'skipped' credit card payments. What does that mean? Are you clearing your balance every month?

My advice would be to save first. If you don't, you're running a big risk. Namely that any increase in costs will kick you over the edge.

Also, what's your wife's pay and will she be contributing to this purchase? More importantly, what sort of financial assets and baggage is she bringing into this?
Alex

Hi Alex,

I've got a personal loan of around 30K to pay off over the next 7 years ~

I mean I always pay back my personal loan or credit card on time, and I usually pay more than the minimum in the past ~

I've got a friend who was also a big spender before like me with no savings, but last year he got a loan from Adelaide Bank to buy a property in Blackburn ~ and though he didn't have any personal loan payment, however he had borrowed like almost $380K ~ So you could imagine his loan payment is more than my combined home loan + personal loan payment (assuming I do buy a house) ~

And once he bought a house, now it forces him to put every cent into his mortgage and with the price increase of the houses around Blackburn, now his net asset changed from Broke to maybe over $50,000 easily over a year ~

So I am thinking if I do take the risk to buy a property (not necessarily $260K ~ that's why I am struggling with different options with the cheapest unit being $160K), it will force me to save $$$ and probably with a little bit capital gain in the next 2 years, I will be able to refinance and borrow $$ from home loan to pay back my personal loan debt; so instead of paying 16.6% personal loan interest, I will be paying whatever the home loan interest ~ does that make any sense to this strategy?

 

[The Y-man]

I really love to buy a house/land package or a brand new home; as I don't have to worry about maintaining/fixing the house at least for the 1st 7 years.

Do NOT assume for one minute that just because you buy a brand new house that it will be maintenance and fault free!

I have had some amazing issues with new places (some appearing years later) including:

* Nail through a water pipe. The slow leak eventually destroyed the wall it was located against (many months later).
* Oven failure - builder did not put the required ventilation hole in the cabinet (about a year later)
* Gas cooker fault - installed unit made for Euro gas pressure
* parts of building not wired up for power

etc etc

As for workmanship guarantees, make sure the builder/company will be around afterwards....

Cheers,

The Y-man

 

[WallaceTai]

Also, what's your wife's pay and will she be contributing to this purchase? More importantly, what sort of financial assets and baggage is she bringing into this?
Alex

My wife-**to be** will be able to contribute her pay $$$ to the home loan; but I do not want to count her in the picture in my planning as I hate to get the relationship mixed up with the finance ~ So whatever she contribute will be a bonus to me and I don't want to get into a position that I have to default my home if I break up with her or our relationship doesn't work out as we plan if you know what I mean??

 

[WallaceTai]

Do NOT assume for one minute that just because you buy a brand new house that it will be maintenance and fault free!

The Y-man

Thanks for the tips ~ so in that case should I go for those BRAND NAME BUILDERS or smaller one?

By Brand Name I mean builders such as National Builder Group, BurBank, Henley, AVJennings, Metricons, etc ...

I've seen quite a lots of cheap house package (small house + small block of land around 300 sqm) are built by Riversgum, Zadun Homes, John's Contructions, etc ... I don't know much about those builders ~

Some say the project manager in those BIG builders are managing lots of projects so they might not give you the same level of attention as the smaller builders; so I haven't made up my mind whether I should go for big builder or not ~

 

[Property Meister]

I've got a personal loan of around 30K to pay off over the next 7 years ~

I mean I always pay back my personal loan or credit card on time, and I usually pay more than the minimum in the past ~

I've got a friend who was also a big spender before like me with no savings, but last year he got a loan from Adelaide Bank to buy a property in Blackburn ~ and though he didn't have any personal loan payment, however he had borrowed like almost $380K ~ So you could imagine his loan payment is more than my combined home loan + personal loan payment (assuming I do buy a house) ~

Firstly before I go ahead, everyone here is trying to give advice to help you, some comments may seem harsh, but they are usually straigt to the point...

iam a bit of an expert on credit cards, as I have been in a crapload of debt before but I got out, and I busted my butt to get out

you say you pay back your minimum amount, now depending, on how much the loan is now, I ve got a gut feeling its a credit card and you probably haven't managed your finances very well, and it consists of a new mobile phone, a new stereo, engagement ring for the wife, holidays, car modifications......basically luxuries, except the wifes ring, but you get the hint.

the minimum payments are ridiculously low, Im not joking but say you had $10k on the credit card, there are calculators around,i twill take you something like 50 years to pay it off in full, if you just made the minimum oayment,

you need to put it a hell of a lot more then the minimum payment, you should basically ignore that minimum amount, it almost means nothing (unless you don't make it) squeeze every dollar out,

there are a few good links with how to reduce your debt, $30k is in my view the average to above average amount, mine was much bigger (they weren't personal expenses though, they were from a failed business), and fully paid off in about 3 years, cos I set a goal to get rid of it, before i did anything

as for your friends mortgage, you have categorised yourself as the same as him, your loans are for liabilities, and his are for assets, well appreciating ones..

I would much rather be in your friends situation with huge mortgage payments, then yours with minium payments.

I seriously think, buying a house is probably something you should put off for a little while, unless your wife is on mega $$$

thats my shrewd take on things!

 

[alexlee]

I've got a personal loan of around 30K to pay off over the next 7 years ~

I mean I always pay back my personal loan or credit card on time, and I usually pay more than the minimum in the past ~

Paying on time and paying more than the minimum are NOT the same thing in my book. Paying on time means clearing the WHOLE outstanding amount when it's due. i.e. you pay NOTHING in interest on the credit card.

I've got a friend who was also a big spender before like me with no savings, but last year he got a loan from Adelaide Bank to buy a property in Blackburn ~ and though he didn't have any personal loan payment, however he had borrowed like almost $380K ~ So you could imagine his loan payment is more than my combined home loan + personal loan payment (assuming I do buy a house) ~

And once he bought a house, now it forces him to put every cent into his mortgage and with the price increase of the houses around Blackburn, now his net asset changed from Broke to maybe over $50,000 easily over a year ~

Assuming the place goes up. Given your spending pattern, it's going to be very painful to you to suddenly have to put that much into a mortgage. Are you sure you're up to it? So far nothing in your history suggests that you are.

So I am thinking if I do take the risk to buy a property (not necessarily $260K ~ that's why I am struggling with different options with the cheapest unit being $160K), it will force me to save $$$ and probably with a little bit capital gain in the next 2 years, I will be able to refinance and borrow $$ from home loan to pay back my personal loan debt; so instead of paying 16.6% personal loan interest, I will be paying whatever the home loan interest ~ does that make any sense to this strategy?

It makes sense IF the property goes up in the short term. That may or may not happen. In the meantime, if it DOESN'T go up, you have the added pressure of sacrificing your lifestyle for an asset that might temporarily go down.

You're trying to grow your way out of debt, which isn't the safest way to do it, because you require short term gains. Do it if you want to, but recognise the risks you're taking. If the Melb market continues to do well, you're laughing. If not.....
Alex

 

[alexlee]

My wife-**to be** will be able to contribute her pay $$$ to the home loan; but I do not want to count her in the picture in my planning as I hate to get the relationship mixed up with the finance ~ So whatever she contribute will be a bonus to me and I don't want to get into a position that I have to default my home if I break up with her or our relationship doesn't work out as we plan if you know what I mean??

Not really. You're getting MARRIED, dude. Get a good idea of her finances. She's going to be involved in this no matter what. It's one thing to mix a friendship or even dating with finance, but if you're getting married, they're going to be mixed anyway. Unless she isn't working, which is different. I'm in that situation in that my fiance doesn't work, but my case is different because I can afford to support a non-working wife.

By the way, if your marriage doesn't work out, she'll probably get half the home anyway, regardless of whoever was paying the mortgage.
Alex

 

[Aaron Sice]

you need to be able to afford a new home on one income.

what if she gets pregnant? are you going to sell and move bcause one of you has to leave work? or are you going to live on 2min noodles all your life?

you need to channell ALL your money into paying off any loans or CCs you have. forget about the Tokico shocks on ebay, forget about that DVD series on Amazon. GET RID OF THEM. once you are free of any student, personal, car, cc loan then you should gi buy property.

 

[WallaceTai]

Thanks guys for all the suggestions ~ that's really helpful ~

I didn't think about buying property 3 months ago, but I'm in a position to find another place to move out (as my previous landlord is moving back and need me to move out) ~

In the past 3 months, everywhere I go for a house inspection, there are almost 30 ~ 50 people waiting outside the property; and believe it or not, it doesn't matter the rental property is $160 a week in St Albans or $350 a week in Melbourne CBD ~

That's when I notice that there are some "cheap house" in Melton available ~ and my logic is if I am going to pay $250 on average for a comfortable place (most likely only 1 bedroom) for the next few years, I will most likely paying $30,000 to $35,000 in renting ~ what if I could buy something cheaper and pay for my own mortgage? That's my original rationale in buying a house

Over the past 3 months, I've noticed that rental properties jumps up like 20% on average, lots of house even advertised for $220 will put a fine print saying the rent will be increased to $260 by May/June 2008, etc ... and if the rental rate keep going up 10% in the next few years, that means I either have to accept and cope with that or I have to find a place to move out ~ Trust me, I have less than 4 hours sleep over the last 3 months and I spend almost extra 2 hours after work to travel to places as far as Melton/Sydenham just to inspect ONE HOUSE (as most houses are only available in open inspection) ~

Lots of agents in Melton has told me the land prices in Melton has gone up from $75K on average to $95K/$100K ~ and land in Point Cook has gone up to like $200K for a block of land ~ I really feel the pressure of the land price going up like this, as by the time I pay off my personal loan (say in 3 years time), what if the land price in Melton already gone up to $150K+ per block?

Also with the rent getting so ridiculously expensive, it's getting harder and harder to save ~ So my idea is even I pay only interest in the property, at least there is a chance for the land price to go out and so I'll be able to get some equity over the next 3 years ~ But if I wait, then I will have to pray for the house price to drop in the next 3 years, otherwise, I might have to borrow a bigger loan at the end of the day ~

 

[alexlee]

I'd still like to know how you plan on SURVIVING the next couple of years with no savings and a sudden increase in payments, not to mention repairs, insurance, council rates, etc. If you just go further into debt when, say, a bill comes in, it's just going to get worse.

Have you talked to your fiance about this? Is she prepared for a sudden downgrade in lifestyle (in terms of going out less, eating out less, probably fewer holidays, etc)? This isn't the sort of thing you want to spring on a person after you get married. She's used to a certain lifestyle so far: you might want to warn her that it's going to change.

Going off-topic, this is the main reason why I think we'll boom again. People seeing rents going up and up, and just deciding to buy instead. I don't expect it to happen this soon, though.

BTW, Wallace, how old are you?
Alex

 

[WallaceTai]

I'd still like to know how you plan on SURVIVING the next couple of years with no savings and a sudden increase in payments, not to mention repairs, insurance, council rates, etc. If you just go further into debt when, say, a bill comes in, it's just going to get worse.

Have you talked to your fiance about this? Is she prepared for a sudden downgrade in lifestyle (in terms of going out less, eating out less, probably fewer holidays, etc)? This isn't the sort of thing you want to spring on a person after you get married. She's used to a certain lifestyle so far: you might want to warn her that it's going to change.

Going off-topic, this is the main reason why I think we'll boom again. People seeing rents going up and up, and just deciding to buy instead. I don't expect it to happen this soon, though.

BTW, Wallace, how old are you?
Alex

Hi Alex,

I am 37 already, so I am ready and also my wife-to-be realise that we might change the life style dramatically ~ I've enjoyed many years of "luxury" lifestyle by spending exceedings my means ~

I don't have the discipline to save, but I did have the discipline to pay back my previous credit cards, personal loan, etc ~ so I think by putting myself to this huge debt (so there is no way back), at the end of the day, as long as I don't have to default my house, then whatever I put in the home loan (plus the capital gain in the house if house prices go up the way it has been) will be my equity (and thus savings) at the end of the day ~

I expect the first 3 years to live like a monk (means I only buy the necessary furnitures such as fridge, washing machine and a dining table), and leave pretty much all the rooms empty ~

As I said, I am gonna borrow this amount using my income only, so whatever my wife is going to make will be a bonus which could be used to pay the loan faster ~

The real question is if I borrow $150K to get that shitty 2 bedrooms unit in Melton, then the mortgage payment (around $300) is not much than I pay rent (around $250); but then the downside is most likely I won't see much capital gain (except I will have a roof on top of my head); but if I go for the risky option of buying the $260K big house, then very likely I'll see a steady capital gain (for as long as it happens before I default my home) ~ and my plan is I will fix the current interest rate for the next 3 to 5 years so at least I won't have to worry about any interest increase for the next 5 years ~ and no matter how small the amount my wife might earn over the next 5 years will be saved and used as a save buffer for any emergency ~

But I haven't made the final decision yet, and it's very risky in a sense but not buying a house now is also risky because of the embarrassing situation for renters with the high rental cost and low vacancy rate

Many thanks again for all your comments, I'm gonna have a real good thinking about the whole situation later tonight ~

 

[alexlee]

I am 37 already, so I am ready and also my wife-to-be realise that we might change the life style dramatically ~ I've enjoyed many years of "luxury" lifestyle by spending exceedings my means ~

Despite having no history of saving and by your own admittance you have no discipline to save? Personally, I would put myself on a savings plan for a few months to make SURE I actually CAN pay the mortgage before actually signing my name to it.

Right now you just THINK you're ready. You have absolutely no proof that you can scale down your lifestyle (but plenty of evidence to the contrary). You have no idea what it's like to live cheap, and therefore have no idea what your reaction to it will be. It usually involves a lot of stress.

I don't have the discipline to save, but I did have the discipline to pay back my previous credit cards, personal loan, etc ~ so I think by putting myself to this huge debt (so there is no way back), at the end of the day, as long as I don't have to default my house, then whatever I put in the home loan (plus the capital gain in the house if house prices go up the way it has been) will be my equity (and thus savings) at the end of the day ~

You're still carrying credit card debt and that personal loan, though. Paying off the old debt only to take on new one isn't discipline in my book, but that's just me.

Ah well, you obviously have a different view of risk than I do. Do what seems right to you. By the way, you're going to have to SAVE on TOP of the interest on the mortgage: otherwise you won't be able to pay for repairs, rates, insurance, etc.
Alex

 

[The Y-man]

The real question is if I borrow $150K to get that 2 bedrooms unit in Melton, then the mortgage payment (around $300) is not much than I pay rent (around $250); but then the downside is most likely I won't see much capital gain (except I will have a roof on top of my head); but if I go for the risky option of buying the $260K big house, then very likely I'll see a steady capital gain

What makes you think this (I don't know the area - but i assume if people have built units in the area, there must be some demand)?

Also, I would suggest that a cheaper property may retain better liquidity through tough times?

Cheers,

The Y-man

 

[WallaceTai]

What makes you think this (I don't know the area - but i assume if people have built units in the area, there must be some demand)?

Also, I would suggest that a cheaper property may retain better liquidity through tough times?

Cheers,

The Y-man

Hi Y-man,

The reason I think like that is because Melton is a satellite city where there are tons of land; so a tiny 2 bedroom units which is 40km away from the city doesn't seem to be attractive for young family with a few kids ~

The 2 bedrooms units virtually next to the freeway, so there is noise of the car right from the tiny courtyard ~ which is not desirable for most families (I assume) ~

Also, people can buy a 152sqm 3 bedrooms house with 300sqm land for $200K, and the unit costs $160K for only 83sqm with virtually no land (well maybe 100sqm); so the $$$ / sqm is actually very expensive for the tiny unit (though the facial value of the unit) seems to be very cheap ~

In comparison, it's like buy half a dozen of beers for $15 or a slab of beers for $30 ~ Though $15 is cheaper, but the per bottle value is much more expensive and thus offer less value (in terms of building area, land, next to freeway, less privacy as units are sharing common wall with one another, etc) ~

Cheers
Wallace

But if I only borrow $160K, then as I said, I have to either pay $250 in rent anyway, or I can pay $300 for mortgage (which covers P+I) ~

 

[The Y-man]

Well, why don't you get somewhere closer to town?

http://www.realestate.com.au/cgi-bi...r=&cc=&c=96883224&s=vic&snf=ras&tm=1208240489

Cheers,

The Y-man

 

[WallaceTai]

Well, why don't you get somewhere closer to town?

http://www.realestate.com.au/cgi-bi...r=&cc=&c=96883224&s=vic&snf=ras&tm=1208240489

Cheers,

The Y-man

Hi Y-man,

Because without the carpark, the 2 bedrooms unit in Melton are actually cheaper at $149K vs $165K at Hoppers~

http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=104797938&f=0&p=10&t=res&ty=&fmt=&header=&cc=&c=7947870&s=vic&snf=rbs&tm=1208253195

Also, the time it takes for the train to go to city from Hopper Crossings is not much quicker than Melton (35mins vs 40mins)

Finally, the unit in Melton is brand new with modern kitchen, bigger size and better layout (door lead to living room rather than kitchen) ~

There are also more car parks in Melton train stations than Hoppers ~

 

[feihong]

Hi Y-man,

Because without the carpark, the 2 bedrooms unit in Melton are actually cheaper at $149K vs $165K at Hoppers~

http://www.realestate.com.au/cgi-bin/rsearch?a=o&id=104797938&f=0&p=10&t=res&ty=&fmt=&header=&cc=&c=7947870&s=vic&snf=rbs&tm=1208253195

Also, the time it takes for the train to go to city from Hopper Crossings is not much quicker than Melton (35mins vs 40mins)

Finally, the unit in Melton is brand new with modern kitchen, bigger size and better layout (door lead to living room rather than kitchen) ~

There are also more car parks in Melton train stations than Hoppers ~

However though, Hoppers Crossing gets faster ripple effect from Altona, and is closer to beach, and the land scarcity value is a little bit higher too. That's probably why it gets a bit more premium

 

[WallaceTai]

However though, Hoppers Crossing gets faster ripple effect from Altona, and is closer to beach, and the land scarcity value is a little bit higher too. That's probably why it gets a bit more premium

If the price keeps going up, eventually I won't be able to afford to live even in suburb in North West ~ The land price for Caroline Springs, Keilors, Tailors Lake are already out of my reach ...