Buying a house and other financial matters...

[brisneyland]

Hey guys,
I know some of you on here are knowledgeable in such matters. I, however, am a neophyte and would like some advice and just to hear other peoples experiences.

I've recently graduated and got a reasonably well paying job, as has my sister, and we're thinking about buying a house together.

We can pretty much borrow as much money as we want - certainly enough to find ourselves swimming in some very hot fiscal waters.

Clearly, I need to make a pretty tight household budget to see how much I can afford for repayments. My problem is, I've never been good at this, or sticking to the woeful budgets I've made in the past. Additionally, I'm house sitting at the moment so have little in the way of the normal expenses so I find it hard to estimate these things.

I'm also buying a new car soon, and will be getting a loan for that as well.

I guess I'd like to know what other people are spending on home and car loans as a proportion of their income - this would really help my planning I think.

Any advice would be appreciated guys

Oh, and yes I will see a real financial planner soon but forewarned is forearmed

 

[Nerf Herder]

Good decision ... a home loan is a form of forced savings ... and the earlier you start the better.

I'd suggest not getting a separate loan for the car ... in fact I'd suggest getting a shit box ... until you get a couple of years out of your mortgage. Do you really need a flash car ? [poll of stupid answers to follow]

Budgeting is easy ... sticking to the budget is hard ... the trap most people fall into is making their budget too tough ... I remember budgeting $5 per day for lunch in my early years ... I work in the Sydney CBD ... so unrealistic ain't it ... I spend that on Coke .

Anyway, put money away for entertainment, petrol ... snacks ... and an emergency fund (even $30 a pay or something) ... This also doubles as your holiday fund

Now, you don't need to go to a financial planner ... your Mom & Dad can help you as they've gone thru this pain ... I'd recommend a Mortgage Broker maybe ... but I'm always suspicious of these people that get paid trailing fees for Advice they sell you ... Anyway, good luck.

 

[brisneyland]

Good decision ... a home loan is a form of forced savings ... and the earlier you start the better.

I'd suggest not getting a separate loan for the car ... in fact I'd suggest getting a shit box ... until you get a couple of years out of your mortgage. Do you really need a flash car ? [poll of stupid answers to follow]

I have a shit box car and it now needs a few thousand dollars to make it safe again
Yeah, it certainly makes more sense to stick with the shitbox for a while but I'm getting really tired of driving a 51 year old car with shit brakes and no air con.

I test drove a VW Golf GT today

Fuggin expensive though.

Now, you don't need to go to a financial planner ... your Mom & Dad can help you as they've gone thru this pain ... I'd recommend a Mortgage Broker maybe ... but I'm always suspicious of these people that get paid trailing fees for Advice they sell you ... Anyway, good luck.

I need to see a financial planner/accountant guy anyway to get some salary packaging stuff sorted...

As for the loan, I do need to shop around a bit more but the medical finance mobs are looking pretty attractive. They're pretty happy to give me a 95% (or even 100%) loan and waive the mortgage insurance at a reasonable interest rate.

Cheers

 

[sxereturn]

Rule 1 - Only ever borrow money to buy things that will make you money. That's not a car - you end up paying 50% more for something that's worth 50% less when you sell it.

Rule 2 - Do all the budgets and bullshit in the world, it doesn't help didly squat. You know what you can afford. I currently pay ~$2500 a month in mortgage

 

[brisneyland]

Rule 2 - Do all the budgets and bullshit in the world, it doesn't help didly squat. You know what you can afford. I currently pay ~$2500 a month in mortgage

I don't though, hence one of my questions in my original post.

I've just got a real job, after being a broke-arse student for many years, and I'm actually house sitting at the moment so have almost nothing in the way of out going expenses.

Which is why I was wanting to know roughly how much (as a percentage) people are spending on things like house payments.

 

[Binaural]

Hey guys,
I know some of you on here are knowledgeable in such matters. I, however, am a neophyte and would like some advice and just to hear other peoples experiences.

I've recently graduated and got a reasonably well paying job, as has my sister, and we're thinking about buying a house together.

We can pretty much borrow as much money as we want - certainly enough to find ourselves swimming in some very hot fiscal waters.

Clearly, I need to make a pretty tight household budget to see how much I can afford for repayments. My problem is, I've never been good at this, or sticking to the woeful budgets I've made in the past. Additionally, I'm house sitting at the moment so have little in the way of the normal expenses so I find it hard to estimate these things.

I'm also buying a new car soon, and will be getting a loan for that as well.

I guess I'd like to know what other people are spending on home and car loans as a proportion of their income - this would really help my planning I think.

Any advice would be appreciated guys

Oh, and yes I will see a real financial planner soon but forewarned is forearmed

OK, I've never bought a house, but some thoughts for you anyway:

1. Is the house for you to live in or for investment? This is very important for tax reasons, since I believe your primary residence is exempt from some of them.
2. Paying rent buys you freedom (some, at least). If you buy a house with someone then it severerely impacts your flexibility to pick up and go somewhere else if you want to in the short term - moving overseas, or even moving town or state, not least by depleting any spare cash. Depending on what you do, this should at least make you pause. If you have the kind of job closely tied to the economic cycle then you may want to tread carefully for the next couple of years.
3. Why not buy the car first and see what your finances look after that? If you find you are struggling a bit with that then you may want to think about your finanacial position more.You may find that there is more room when you're older
4. Buying a house young is a pretty Australian thing - many in the rest of the world see no harm in renting for a long time or for life. This frees up money for things like awesome holidays and other things.

If I were you (and maybe I am, in late 20s) I'd keep my money for fun things and wait until I see a bit more of where life takes me before I commit that sort of time and cash to a particular place anywhere on earth.

 

[brisneyland]

OK, I've never bought a house, but some thoughts for you anyway:

1. Is the house for you to live in or for investment? This is very important for tax reasons, since I believe your primary residence is exempt from some of them.
2. Paying rent buys you freedom (some, at least). If you buy a house with someone then it severerely impacts your flexibility to pick up and go somewhere else if you want to in the short term - moving overseas, or even moving town or state, not least by depleting any spare cash. Depending on what you do, this should at least make you pause. If you have the kind of job closely tied to the economic cycle then you may want to tread carefully for the next couple of years.
3. Why not buy the car first and see what your finances look after that? If you find you are struggling a bit with that then you may want to think about your finanacial position more.You may find that there is more room when you're older
4. Buying a house young is a pretty Australian thing - many in the rest of the world see no harm in renting for a long time or for life. This frees up money for things like awesome holidays and other things.

If I were you (and maybe I am, in late 20s) I'd keep my money for fun things and wait until I see a bit more of where life takes me before I commit that sort of time and cash to a particular place anywhere on earth.

1. We'd live in it for two years and then keep it as a rental/investment property.

2. I'm fairly sure I'll be stuck in Brisbane for the next two years. And after that, as long as the property is rented out, it shouldn't be too much of a financial burden. My job is pretty secure and my income is almost guaranteed to increase.

3. This is what I was thinking, but various financial 'first home owner' incentives will end, I suspect, at the end of this financial year. Not all of them, but some of them. Yes, I recognise that 14k in the context of a house purchase is fairly small, but that money makes it much easier to get into the market - it's certainly quicker than saving the extra cash for a deposit. I was also thinking of doing it the other way - buying the house and then seeing how I go with finances.

4. Oh believe me, I hear you on this one. I could easily fritter away every dollar I earn on exotic ski trips etc, but I think the time has come to be a little more conservative. Being able to still have fun during my holidays will definitely remain a priority.

 

[Ryan]

Assuming that all this discussion of good job security and guaranteed wage rises means you're going to be working for Queensland Health?

One of my old colleagues was married to a Queensland Health employee and the level of salary wheeling and dealing she was able to do with them was phenomenal. Salary sacrificing into both a car loan and holiday fund at the same time, plus some kind of voodoo magic where by salary sacrificing directly into a super fund instead of having it deducted from her wages she was able to substantially boost her take-home pay each month.

As I understand it there are financial adviser types within the organisation who specialise in setting up these deals and are happy to be accomodating as Queensland Health are desperate to stop trained doctors being lost to the private sector.

Sorry for the "friend of a friend" type of story, but the deal she had was just incredible and had all been set up and tailored for her. Find the people who do this and have a talk to them!

 

[brisneyland]

Yeah, we get some pretty sweet deals. I don't quite understand why we should be allowed to salary package things as frivolous as dinners out and so on, but I will take as much advantage of it as I can.

And all of a sudden banks want to be my friend and insurance companies love me!

 

[Mail Man]

All good ideas above. My contribution is for your sister and you to get different mortgages. It is quite simple and you get the deed to half a house. That way you are not locked into your sisters other commitments and she is not with you.

For example if either of you meet another person within the next 30 years, and want to buy a house you do not have to go to the bank with your sister and refinance. You can just refinance your half.

Also if you want a car that bad you can add that to your bank loan, and only pay 6-7% instead of 13% for a personal or car loan. The trick here is to still pay off your car portain at the rate pretending if it was a seperate loan.

eg. $100,000 = $1,500 a month
add car of $40,000 at 13% = $1,000 a month for 5 years.

however if you add this to you home loan it will only add $500 a month but still pay the extra $1,000 for the five years and save yourself heaps of cash.

Please do not think the above figures are real as I pulled them out of my arse as an example.

I hope this helps you a little bit. Oh and for those that say budgeting does not work, they are doing it wrong. Everybody should budget and stick to it and there would be a lot less debt in the world.

Also to the post that says you are stuck for ever in a house you buy. I bought a house lived in it for a year (first home buyers) then moved to Canada. Now I rent it out. You are never truely stuck, it is just a state of mind.

Best of luck and do it.

 

[brisneyland]

All good ideas above. My contribution is for your sister and you to get different mortgages. It is quite simple and you get the deed to half a house. That way you are not locked into your sisters other commitments and she is not with you.

For example if either of you meet another person within the next 30 years, and want to buy a house you do not have to go to the bank with your sister and refinance. You can just refinance your half.

Also if you want a car that bad you can add that to your bank loan, and only pay 6-7% instead of 13% for a personal or car loan. The trick here is to still pay off your car portain at the rate pretending if it was a seperate loan.

Cheers mate.

Yeah, the Finance Man that I spoke to yesterday mentioned it was possible to get the loan separated like that, and it sounds like a great idea. We're trying to think of a sneaky way to only burn one 'first home owners grant' though, and I doubt it would be possible with this setup. Any sneaky ideas as to how we could achieve that?

Finance Man has been speaking about offset accounts and so on as well, which I am beginning to get my head around, and they sound like a good idea for my situation.

I can get a car loan at 7% so that's not too much of a worry.

Man, I suck at Money.

 

[leitch]

Obviously I'm no help in the matter at hand at all, but I just wanted to say congratulations on graduating, Ben! If you're moving to Brisbane we should get a few beers at some point/pretend to ride bikes but really not.

 

[brisneyland]

Cheers mate!

I'm keen as for a beer some time.

I'm already up here actually, working at the Royal and house sitting a pimp apartment in Bulimba.

Give us a shout when you're back in Bris mate.

 

[scblack]

Alright, here's a start:

1. How much savings do you have? Nothing it sounds like.

2. How much is the sort of house you are looking to buy? Assuming you have no savings, half the value is your mortgage amount.

Hop onto www.commbank.com.au and play with the home loan calculator- its one of the Tools and calculators on the right, and work out how much your repayments will be. Interest rates have fallen at the minute, so enter the interest rate at a higher rate than it is now - up to 10%. Remember not long ago, people were paying 17% plus on mortgages so you MUST budget for higher rates than now.

How much is that compared to your post tax income (I mean pay you receive in the bank?).

3. Get a USED car, not a new Golf. Spend $10K-15k get a good used Corolla or something. Your plan is to get a house - not a new car. The car will be gone in 5years or less - your house will be a much longer lived asset. Get a loan for it if you need it - who the hell has $15k-$30k sitting around to buy a car with cash? Car loans are normal. But budget for it.

4. Keep the house and the loans with your sister COMPLETELY SEPARATE. Family members can be the WORST people to go into commitments such as this together with. Buy the house with TENANTS-IN-COMMON TITLE - and have each others loans completely untied.

If she loses her job, or gets married and/or divorced you do not want to be fighting over holdings or values or repayments or any other crap. That would value the investment down to zero.

Keep family finances separate.

Tenants-in-common means you own a separate title to 50% of the property, and can reasonably easily sell it if you need to. Joint Tenant title is NOT what you want, as it would mean you both own the whole thing shared. Separation of your entitlement is not possible, and if one of you needs to sell for some reason it gets very difficult.

5. Future costs of the house. The house will need repairs, maintenance, upkeep and improvements. Keep this in mind, as if you budget to the limit for the house value, you will have no spare funds to do any of this. How much this costs no-one knows, but it must be allowed for.

Thats a start.

 

[slip]

Buy to make money.

I've got the income and deposit to buy a house, but am low doc and freedom/flexibility are my priorities.

There is plenty to be made in property, but I'm able to pull substantial savings while renting at $200/wk in a half posh unit that is worth over 500k - the repayments on which would be...substantial.

I laugh at people who buy a house, sell it 5 years later claiming to have made 60k. Piss off, how much interest did you pay in that time genius? Have a real look at the numbers, costs, interest, rates etc - expected profit, and so forth. There's coin to be made, but you could have heaps of free dosh to put into other assets.

Still, I reckon theres more to be made in property if you get it right, but I've seen some laughable efforts from people deluding themselves.

 

[gravelclimber]

Generally you don't want to be spending more than 1/3 of your income on loan repayments - otherwise it's classified as mortgage stress.

We spend a bit over 1/4 on our repayments (unfortunately we fixed 3/4 when interest rates were high - such is life).

Be very careful where you buy - a lot of areas are probably in for a big fall (particularly around Brissie as the prices skyrocketed so quickly over the past 10 years). This doesn't really matter if you're in for the long haul, but if you do want to sell up in the short term there is the potential to drop a fair bit of cash.

And what scblack said at no 5. A house costs a lot of money outside of just paying off the loan. It's not like renting at all in the sense. That's the bit we probably weren't prepared for.

As for cars, go the most basic one that will do the job reliably.

 

[scblack]

Buy to make money.

I've got the income and deposit to buy a house, but am low doc and freedom/flexibility are my priorities.

There is plenty to be made in property, but I'm able to pull substantial savings while renting at $200/wk in a half posh unit that is worth over 500k - the repayments on which would be...substantial.

I laugh at people who buy a house, sell it 5 years later claiming to have made 60k. Piss off, how much interest did you pay in that time genius? Have a real look at the numbers, costs, interest, rates etc - expected profit, and so forth. There's coin to be made, but you could have heaps of free dosh to put into other assets.

Still, I reckon theres more to be made in property if you get it right, but I've seen some laughable efforts from people deluding themselves.

You're right, but as Nerf says - the house is ENFORCED SAVINGS.

How many people would REALLY save the money they would otherwise pay in mortgage interest - very very very few. If you think otherwise, you are deluding yourself too. You yourself may manage it, but it is very rare in reality.

The house/unit locks up the funds and can't be spent on a holiday or a car which is worth f**k-all in two years time.

 

[scblack]

Oh, DO NOT add the car to the mortgage.

You will be paying off that car for the next 25years.

If anyone says they paid the extra off the mortgage to recover the repayments, I will call bullshit.

Home loans are for homes.

The key is to ensure the term of the loan matches what you are buying - if a car lasts you for 5years, take out a 5yr personal loan.

 

[MasterOfReality]

Basically as everyone else said, do not add onto the loan for a car.

You will need a minimum deposit to avoid mortgage insurance. I think its 20%. Thats a hefty bit of cash needed. I remember I stumped up $100k as a deposit for my place in Brissy just over a year ago and that was only 26% of the purchase price.

Budget for rate increases. I budgeted for 12-15% interest rates. It might seem excessive now, but last year when rates were heading for 10% it didn't seem like a bad idea. Now I can rest easy knowing that I'll be able to meet my payments, and if I loose my job, I have around 6-12 months worth of payments in the bank for reserve.

That leads me to another point - always keep something like $10k cash on the side in case something goes wrong with the house. Your bank might offer a high interest sub account - whack it in there. Don't touch that cash, keep it for emergencies. As always, everything with houses is bloody expensive to fix if you can't do it yourself.

And don't get the loan in both names. Biggest mistake you could make.

 

[slip]

You're right, but as Nerf says - the house is ENFORCED SAVINGS.

How many people would REALLY save the money they would otherwise pay in mortgage interest - very very very few. If you think otherwise, you are deluding yourself too. You yourself may manage it, but it is very rare in reality.
.

Yeah thats true, in recent discussions a number of people with a greater income than me were surprised at my cash holdings, especially considering my lifestyle/spending habits/what I've pumped into cars/bikes.... They manage to burn cash at an alarming rate somehow. "How do you save that much!?" Um, not spending it?

I could have made a lot of money by now with property, but to do that I could not have lived the life I have over the past 6 years.

Has anyone here developed land? I keep seeing fantastic opportunities in Brisbane, and there is a LOT of it happening. Demolish a shitbox house on a big block, and slam 8 units in there. Demand is still good here, especially in the right spots. 114 (I think) units in a new Albion development just sold out in 2 weeks. FKP pull some good ones.