Saving For A House | Home Ownership For first Buyers

In these turbulent economic conditions, many home owners are losing their houses. In the United States the sub prime mortage crises has been the root cause for many owners losing their homes and as the owners walk away and leave their houses to the banks, the values of housing plummets in some areas of the USA. In other countries such as Australia, home owners are also defaulting on their mortages, yet the primary issue in that the country remains in a crises due to housing affordability. Disciplined saving practices and prudent debt consideration before purchase make for a stronger financial position during tough economic conditions.

Saving for a home will most likely be the biggest investment you will ever have to save for in your life. If you are just starting to save for a home you might be finding it a bit discouraging due to the ridiculous prices that homes sell for at auctions these days. But it is important to remain positive.

Rising interest rates remain a chief financial concern for those of you that have home loans already. When applying for a home loan it is important to take interest rate rises into consideration. If you don’t then the slightest increase of rates will see you struggling to make repayments and meet household bills.

Tips To Consider When Buying A House

• Calculate potential repayments e.g. up to 15%.
  
• Fix part of the loan prior to interest rate rises.
  
• Buy somewhere affordable, if you can’t afford a seaside home then opt for cheaper suburb.
  
• Get a no frills loan instead of a revolving line of credit.
  
• Shop around.
  
• Become financially literal.
  
• Reduce credit card limits to maximise your home borrowing power.
  

It is very easy to become confused when shopping around for a home loan as there are so many different products available. Choosing the one that is right for your needs becomes virtually impossible especially if you are not financially literate. Therefore it is very important that when choosing a loan you learn how the loan functions. It is essential that you become financially literal because you most likely will be paying the loan off for some years to come. It is also important to service your loan at the end of each year. Being financially unaware will only lead to missing out on potential savings. Making the decision to take out a home loan is a very big financial step. Knowing and understanding the fundamentals of a loan will assist in making the decision process much easier. It will also assist you to manage your mortgage much more efficiently. If you have a loan take the quiz on www.myrate.com.au as it really tests your knowledge on lending and the terms used.

It is important to remember that lenders take all debt into consideration when approving a home loan. For example if you have a limit or $10K on your credit card but only use $2000 (and keep the remainder as an emergency) the lender will still evaluate the entire amount because he or she will consider all liabilities when evaluating your serviceability. The entire $10K is made available to you and could be spent tomorrow. Regardless of whether you use the full amount or not it is still accessible and available for you to use. Therefore if you are wanting to apply for a home loan then one of the first steps to take would be to reduce the limit on your credit card.

Prices of goods, services and the cost of living increase every day. The media constantly reports on how there is a progressive increase in prices relating to goods and services, but we don’t need the media to tell us that prices are going up. Our weekly shopping bill is a clear indication on how expensive the cost of living is becoming. Purchasing a home and renting is also increasing at a fast pace. If the cost of goods and services are expensive now or the thought of buying your own home is an unattainable dream today, then image how unobtainable owning your own property will be when it is your child’s turn to purchase a home. It’s understood that not everyone is interested in buying their own home and some people like the flexibility of leasing, but even renting is becoming expensive and there have been cases where renting has become an auction due to the amount of interest expressed in the property. So really whether you are buying or renting you are still faced with similar problems.

Housing Affordability

For those of you that are just beginning to enter the housing market, you have a long road ahead. Especially when housing sales are reaching record highs. Also people with huge mortgages are struggling with repayments and are putting a strain on their personal finances due to spending and rate rises.

Housing affordability also makes you live in suburbs that you wouldn’t ordinarily choose. For example moving to the country because city prices are so unaffordable. Moving too far away means that house owners are sometimes far from work, far from family and friends and far from community services. This becomes an added expense and detracts time away from loved ones.

In the 1960’s families spent 2.5 times the average income to obtain a family home, now it’s approximately 9 times the average income. This means that less people can afford to buy their own homes. But what has pushed the prices of houses up? A few reasons are: Two income households, population boost (i.e. skilled immigration), reduced interest rates, first home owner’s grant and looser lending standards. I remember a personal lender at work saying that everybody could be a potential target for a home loan, even someone on a government pension. He told me about a client of his who was on unemployment benefits and he approved at $20K loan.

Renting | The Rental market

Unfortunately housing affordability may result in social divide, that is those who can afford or own their own homes and those who rent. Finding a place to rent is harder than it sounds. Household rent has risen as well as buying due to demand. Across the road to where I live, are a block of four units. Within 3 weeks the existing residence all moved out due to rent rises. In 2004 the rent was $270. Now the rent increased to $520 per week. Renting is like buying a house these days. The agent arranges an open for inspection day, people line up to see the house and then the bidding war begins. It’s like an auction. I knew a couple who where looking for a place to live 5 km of the city. It took them about 6 months to find a place. They finally asked the agent what they were doing wrong. The agent gave them a few reasons and one was that they weren’t bidding high enough.