The Blues and Joys of Buying Your First Property
I just spoke to a newly married young couple who can afford to buy a house for around $500,000 as they both have good full-time jobs, but as their deposit was a little light, they thought they needed the First Home Owners Grant for new properties.
There’s a $10,000 grant for New South Wales residents and $20,000 available in Queensland.
The conversation was very interesting and it showed me just how much of a difference it makes when you have previously purchased property as
opposed to buying property for the first time.
The first thing we talked about was the loan. They thought they may have difficulties borrowing, so they went to a non-bank and non-credit union lender. My recommendation is always to go to a bank or credit union first. If you go to a mortgage broker make sure the mortgage broker checks out banks and credit unions first.
Many other lenders found themselves under pressure during the global financial crisis as their own funding dried up and the lenders raised interest rates skywards to get people to refinance. In other words, suddenly they didn’t want mortgages on their books and if you couldn’t refinance, things were instantly much more difficult for the homeowner as interest rates from these lenders hit 9% or more. Nothing as bad as this happened to those who borrowed from bank or credit unions.
I have also found that many of these non-bank, non-credit union lenders are either more difficult to get a loan from than a bank or credit union or, if they were easier to get a loan from, they charged high interest rates and very quickly became difficult to deal with if you had even the slightest issues with your loan. Also, in some cases, getting the loan actually paid out was much more difficult than it normally is with lots of delays in the paperwork.
A very good mortgage broker can be an excellent alternative to going direct to a bank or credit union but a bad mortgage broker can quickly lead to a lot of issues and delays.
My clients had to buy a new property to be eligible for the First Home Owners Grant, so they decided to buy a house and land package from a developer. There are occasions where this is a good idea but spending $500,000 on what is currently a bare patch of ground is fraught with danger. The builder may go broke. Despite insurance, that is a painful process. The builder may decide to cut corners so it may be, for example, that the roof starts leaking after five years or during the next big storm; there may be a sudden shortage of tradesmen, or any of a myriad of other things can go wrong.
In other words, when we do something exciting and valuable like buying our first home, it can pay to be aware of the potential downside. I would definitely not assume that everything will go well. Often everything turns out well but there are times when it doesn’t and not having a financial buffer can become very stressful. Hence, a newly built property that can be looked at and checked out with professional building and pest inspections may be a much safer choice.