Buy a house for tomorrow, not today
By Ross Marais
When should you get into the property market, where should you buy and how much do you need to have saved as a house deposit? These are just some of the many questions that first or second home buyers are faced with. What makes this process even more difficult is that we have the so-called “experts” from the media, our family, and our mates at work giving us their opinions about what we should be doing with our money.
When it comes to buying a house it can be hard to block out all of the noise. It makes it even more challenging when you are working in a job where you may be earning more money than you have ever earnt before and you are not really sure what you should be doing, because let’s be honest, we were never taught about this thing called MONEY.
Working in the mines? Here are some of things to think about before buying a house:
How much could you afford to repay if you lost your job?
What you can afford today, is different from what you and your family may be able to afford tomorrow. Could you still afford the home loan/mortgage repayments if the mining cycle drops (which we have seen before), if you lose your job and the big income you were earning stops coming in?
A good way to look at this calculation is to use the wage you were on before you started working in the mines, or if you’ve always worked in the sector, then your starting wage. Maybe you were earning $60K or $80K annually. As hard as it can be to think about losing your job or what it may be like if you had to go back to work an old job, the reality is that mining booms don’t last forever. So when you are working out how much you can borrow for a house or investment property, calculate what you could afford to pay if you were on your previous income. That way if the worst did happen you can sleep comfortably at night knowing you can afford to still pay your mortgage and won’t be forced to sell your family home just because you lost your job.
Save some money for a raining day
When it comes to putting down a house deposit it is always a good idea to not use all your savings and leave yourself a savings/ cash buffer in case things go pear-shaped, which can happen in this thing we call life. Having a minimum of 3-month income as an emergency fund is a good place to start.
Just because the bank will lend you the money, doesn’t mean you can afford to borrow that amount.
The one key thing to remember when buying a house or taking out a loan/mortgage is how the banks make their money. They are in the business of making money from people who borrow money from them, the more you borrow the more interest you pay, the more profit the banks make. And while they don’t want people to default on their mortgages, just remember you are paying them a fee (interest) to borrow the money from them, they aren’t giving you a loan because they are nice people!
It’s up to you to do your due diligence when purchasing a property.
Ross Marais is an Independent Financial Adviser of More Time Financial, offering financial advice, money management, and financial education to help young Australians make smarter decisions with their money. Find out more www.moretimefinancial.com.au