Things To Consider...

[Infest]

...When buying my first home.

First time I've posted in this section, so a bit about me.

Age: 18
Income: ~650 p/w
Savings: ~40,000
Debt: Nothing

I am wanting to buy my first house before I turn 19. This is a very daunting procedure for me as it's the first time that I will be going into debt. I am also very excited about it due to the fact that (I believe) I'm mature enough at this young age to be considering buying a house.

What I am not aware of are some of the following:

Fees incurred whilst buying the house
Ongoing fees once house has been bought

To broaden on those, I mean such repayments as LMI, Mortgage etc etc. How much I should be looking at paying for them, when they need to be paid etc. I was hoping to dodge the LMI fees but was told by a workmate that my FHOG should cover it, so therefore cannot be any worse than $7,000, correct?

I am looking at buying in the area of Warner, as I really like the area and I've grown up most of my life there. Houses in this area tend to start around the $380,000. I am not interested in Villas or Townhouses. Is this figure I am aiming to surpass (By that I mean by a house that costs more than that, but no more than $450,000) too large due to my current financial situations.

If possible, I would be using this as my first Investment Property.

The main question is, am I too young to take on the responsibilities of owning a property

I don't have anything else to add at the moment. I shall contribute a bit more information once I've got some replies.

Thanks guys.

 

[The Y-man]

...The main question is, am I too young to take on the responsibilities of owning a property
.

IMO Driving and Voting are farbigger responsibilites than owing a bank some money....

Fees (as applicable to your state):
Stamp duty
Conveyancing
are others that come to mind.

Once you buy:
Loan repayments
Council rates
Land tax
repairs
Body Corporate (as applicable)

Cheers,

The Y-man

 

[Firsthomelooker]

IMO Driving and Voting are farbigger responsibilites than owing a bank some money....

Fees (as applicable to your state):
Stamp duty
Conveyancing
are others that come to mind.

Once you buy:
Loan repayments
Council rates
Land tax
repairs
Body Corporate (as applicable)

Cheers,

The Y-man

Just to expand on Y-mans great list - dollar values based on my last $370,000 purchase ($360,000 mortgage - majority is fixed at 8%)

Fees (as applicable to your state):
Stamp duty - $13,000
Conveyancing - $1000 (well I did this myself but thats what you will pay)
LMI - $6,000


Once you buy:
Loan repayments: $2500 per month interest only - interest rates are now higher so your repayments will be higher than mine. Just google 'mortgage calculator' there are plenty of websites that calculate the repayments for you.
Council rates: $1000 pa
Land tax: $1500 pa
repairs: depends on the house - we just spent $1200 on a new hot water system
Body Corporate (as applicable) - you wont have this with a freestanding house
Insurance: $700 pa
Property management: we self manage but if you don't your looking at 5-10% of the rent.
Letting fee: Usually one weeks rent

My biggest concern for you is that you cannot service a mortgage that size on $650 per week if you plan on living in the house which you will need to do to get the FHOG - as you can see the mortgage alone is almost that much, plus expenses like rates, insurance etc. ontop which IME add up to around $100 per week.

If you are going to rent the house you may be able to service the mortgage if you find a high enough yield. The house in my example above is at roughly 7% - a house ($350) and unit ($180) renting for a total of $530 per week and only costs us about $120 per week to hold on to - and thats before tax concessions. You run of the mill property however only yields around 5% - around $350 a week in this example.

And no your not to young to buy a house. I bought my first at 20 and my second at 22. I am expecting to buy my third next year at 23. My nick is 'firsthomelooker' because thats what I was when I first joined this forum over 2 years ago

 

[troyhunt]

I am looking at buying in the area of Warner, as I really like the area and I've grown up most of my life there.

Are you sure these are the right reasons to invest in this area? Main piece of advice I'd offer is to ensure you're entirely objective about the process and take a strictly financial approach. Don't get me wrong; I know nothing about Warner and it may be a fantastic place to invest, just try and assess it with emotions well and truly on the sideline.

 

[Infest]

Are you sure these are the right reasons to invest in this area? Main piece of advice I'd offer is to ensure you're entirely objective about the process and take a strictly financial approach. Don't get me wrong; I know nothing about Warner and it may be a fantastic place to invest, just try and assess it with emotions well and truly on the sideline.

It's got a shopping complex, petrol stations, schools, it's a very cosy area. What other areas would you suggest I look into? I would like to stay on the North side of Brisbane.

Also could you suggest what I "should" be looking for when looking for an investment property.

 

[troyhunt]

To broaden on those, I mean such repayments as LMI, Mortgage etc etc. How much I should be looking at paying for them, when they need to be paid etc. I was hoping to dodge the LMI fees but was told by a workmate that my FHOG should cover it, so therefore cannot be any worse than $7,000, correct?

Round numbers, I work on about 6% of purchase to cover LMI at a high LVR, stamp duty and legals. You'll only dodge the LMI if you keep the loan within about 80% LVR.

 

[Infest]

Round numbers, I work on about 6% of purchase to cover LMI at a high LVR, stamp duty and legals. You'll only dodge the LMI if you keep the loan within about 80% LVR.

Sorry but could you not use abbreviations. I have no idea what LVR means

 

[troyhunt]

It's got a shopping complex, petrol stations, schools, it's a very cosy area.

That's great and they're essential but they're not exactly unique attributes. I'd be looking at what the potential for future growth is; how is the suburb changing in terms of infrastructure (services etc), society (migration, job opportunities, etc) and development and how does the value compare to surrounding areas. You'll be renting it out so how about vacancy rates, rental yields and employment opportunity for tenants.

I can't comment on Brisbane, how about taking a look at the "Where to Buy" forum: http://www.somersoft.com/forums/forumdisplay.php?f=35

 

[troyhunt]

Sorry but could you not use abbreviations. I have no idea what LVR means

Sorry

LVR is Loan to Value Ratio. An 80% LVR means borrowing 80% of the purchase price from the bank. When you borrow more than this you begin to incur LMI (you've used this abbreviation so I'll assume you know what it means!). The advantage of a higher LVR is that you need less upfront deposit, the disadvantage is you're paying the LMI. You can view it as a more financially aggressive approach.

 

[Infest]

Sorry

LVR is Loan to Value Ratio. An 80% LVR means borrowing 80% of the purchase price from the bank. When you borrow more than this you begin to incur LMI (you've used this abbreviation so I'll assume you know what it means!). The advantage of a higher LVR is that you need less upfront deposit, the disadvantage is you're paying the LMI. You can view it as a more financially aggressive approach.

Ahh ok. Thanks for that. I just wish there was an easier way to find a good place . I really want to get the ball rolling.

Any suggestions?

 

[mooby]

Infest look at the purchase price compared to how much you could rent a similar property in the same suburb. Look at land size, proximity to train station / busway, is it a quite street? Use google street view to take a look at some of the surrounding houses..

As far as your financials go I think you're on the right track mate!

 

[troyhunt]

Any suggestions?

Yeah, do what I suspect many of us on this forum do and spend every spare moment trawling real estate sites and driving the suburbs! Seriously though, get educated (which you're obviously already doing). Read these forums, buy some good books, talk to real estate agents. Consider your first investment one of time and research before committing the dollars.

 

[Infest]

Infest look at the purchase price compared to how much you could rent a similar property in the same suburb.

Sorry mate, I am very, very uneducated. How would I go about doing something like this?

 

[Infest]

Yeah, do what I suspect many of us on this forum do and spend every spare moment trawling real estate sites and driving the suburbs! Seriously though, get educated (which you're obviously already doing). Read these forums, buy some good books, talk to real estate agents. Consider your first investment one of time and research before committing the dollars.

Do I go look at houses and talk to real estate agents before I go to the banks? I have not seen whether I can yet get a loan or anything.

When it comes to this stage I just get completely lost

 

[mooby]

http://www.realestate.com.au/

Open the "buy" section in 1 window and the "rent" section in another

 

[mooby]

Talk to a mortgage broker. He will go through all the different aspects of the loan with you and give you an idea of what you can afford. Then you can try and find a place within your budget.

 

[Alex P Keaton]

My biggest concern for you is that you cannot service a mortgage that size on $650 per week if you plan on living in the house which you will need to do to get the FHOG - as you can see the mortgage alone is almost that much, plus expenses like rates, insurance etc. ontop which IME add up to around $100 per week.

Well done on saving $40 K and your only 18. Thats excellent!!

Yep, I just had a meeting with my mortgage broker. I'm in the same situation as you. First home buyer. I will have the $7000 grant and wont have to pay stamp duty either. I earn about $10 K more p.a. than you and my broker said that If I live in the property as a ppor to take advantage of the fhb grants then I qualify for a home loan of $199 K. If I put a tenant in straight away though I think I would have qualified for another $40 K or something. So only $240 K. You also have to be able to afford all the other expenses as well.


I chose the first option. I'll get the $7000 fhog, and wont have to pay stamp duty which is a massive amount saved. I will put a tenant in their for 10 months then move in for a few years myself and when i can afford to, I'll turn it into an ip and go rent somewhere myself. Hopefullly will only have to live their for 3 years or so, I dunno.

 

[Infest]

My parents have agreed to go halves with me if that helps.

Would this be better?

 

[troyhunt]

Do I go look at houses and talk to real estate agents before I go to the banks? I have not seen whether I can yet get a loan or anything.

If it was me, I'd be out there looking at properties (on the web and in person) right away. This is the time investment; even if you find you can't achieve the finance you want right away you're still educating yourself and at some time you'll have the resources to put that education to good use.

One thing I would suggest re finance is to start out with a cheaper property. You may be cutting it a bit fine considering something in the $400k range - why not start out somewhere in the mid to high $200k range? Leave yourself some buffer than buy again when you're ready. This will get you into the market earlier, leave you with spare cash (helps you sleep at night!) and gives you more diversification from adverse events such as erratic tenancies, problems with the property / area etc. I'd far prefer to have two investments at $250k each than one at $500k.

 

[craigb]

Just reading through some of these, and wow to save money like this at such young ages, you are allready champions in my eyes, although very scary, always unknown, a finance broker will sit with you and give you the information that you need, try a few, and visit them one at a time, the cool thing is that when you are young you have time and flexability, you can rent rooms out to others, and if they are your mates, they can help you renovate as well. my advice buy the crappyest home im the oldest area you cam find, and renovate your butt off, you wont always pay the home off quickly but the value will increase very quickly. cheers good luck