How to get onto the property ladder
No matter what stage of life you are at, it’s never too early or late to climb onto the sometimes elusive property ladder. Whether you’ve always dreamed of owning your own home or you’ve chosen to “do other things” with your hard earned dollars, there usually comes a point in time where putting down roots and having a sense of security is seriously considered.
Like most things worth waiting for in life, becoming a home owner and building wealth only comes through a couple of means;
1. You work hard and save harder
2. You have access to family or generational wealth, a guarantor or
3. You receive an inheritance or win lotto
Unfortunately for most people options two and three are usually unachievable however working and saving has proven to be an effective strategy that just requires some commitment, time and focus. One crucial aspect of buying a property is the dreaded DEPOSIT and if you are series about being a home owner then this is where your commitment, time and focus needs to be.
So “Why do I need a deposit?” I hear you ask, and the short answer is, because it is impossible to source funding aka a mortgage from a financier without it. It is also a legal requirement within the contract for sale when buying a property that you pay a 10% deposit based on the purchase price of the property at the point of exchanging a contract.
You will also need to have funds available for associated costs and this combined total is normally referred to as “genuine savings”. The good news here is that any Government grants such as a first home buyer grant can be included in your overall deposit amount. These grants vary state by state so make your own enquiries or seek advice from your broker or bank. These professionals should be able to assist you with applying for such grants when the time is right.
Although the thought of saving will come easier to some, it is achievable and all you need is a plan. So here are some things to think about when building your plan;
- Where would you like to buy?
- How soon do you want to buy?
- What type of property would you prefer?
- How much are you able to spend?
- How much deposit (genuine savings) will I need?
It doesn’t matter how big or small your dream is, the bigger the deposit the better because this will give you flexibility to choose where you live, what type of property you live in and will assist you when organising finance, possible avoid mortgage insurance and to complete your purchase.
Getting started is often the most difficult part but whether you are going in alone or with another person, once you have done a budget, worked out how much you earn, how much you spend on living expenses and what disposable income you can dedicate to your savings plan, the sooner you will be on you way to home ownership.
People often say the first $1000 is the hardest but if you are committed to depositing a set amount weekly, fortnightly or monthly you will soon see your balance grow and the power of compound interest, albeit a small amount, will quickly add up.
Having a realistic savings goal will make it easier for you to achieve without putting too much pressure on yourself and remember if you feel you don’t earn enough to save much there are always options. Perhaps look at additional opportunities to increase your disposable income. Consider getting a part time or casual job that you can do after normal work hours or maximising your current skills to boost your regular income. (Remember additional income earned does need to be declared for tax purposes).
As your savings grow, it is a great idea to keep your eye on the market. Educate yourself about the market you wish to buy in. Scan the web sites, attend open homes and monitor what is selling. In your preferred areas and for what price. This will put you in great standing to be able to make educated decisions about when and where to buy once you have reached your deposit goal.
Sometimes this education process will provide a reality check as you will easily be able to determine what you get for your money and exactly what types of property are selling and at what price and how that fits in with your buying budget. It is also a good idea to talk to your broker or financier to get an understanding of how much money you may be able to borrow.
Compromise is often required when it comes to that first step up onto the property ladder whether it is with regard to location, property type, property size or the condition of a property but remember this is just the first step.
The beauty of buying property is that you can hold it for a few years, pay the mortgage down and then upgrade at a later point. Through market growth over the medium to long term and reducing your mortgage through your regular payments, you can usually create equity and once sold this equity can help to buy something bigger, better or in a different location, moving you the next step up the ladder.
So whether it’s a tiny house, apartment, townhouse, house or mansion you dream of, it all starts with an initial deposit and whether you save it yourself or have help from others the only thing standing between you and your home ownership dream is the time it takes you to save.