Australians aspire to own their own home. How do you do it? This was a question recently posed on my News Corp Gen Y column and while it might sound trite, the honest answer is: with great difficulty.
In June, we crunched the numbers on home loan affordability. Even at our historically-low home loan rates, an average-priced house takes 22% of after-tax income for a Victorian couple who are both on average salaries. In Queensland it takes 20% of the combined after-tax income and in NSW and Western Australia it?s 24% and 23% respectively. Heaven forbid if one of those two people should lose their job, want to take time out for study or take any unpaid maternity or paternity leave.
So if you do want to own your own place in a good location then the best advice I can suggest is to study hard at university, choose a career that you love and work really, really hard to excel at it. Because in the absence of any government appetite to limit the unfair influence of investor power in the housing market then you truly will need, as our Federal Treasurer baldly stated earlier this year, a good job. A really good job. As well as an ability to save.
Can I get a family guarantee on my loan? Going guarantor
One option for breaking into property the market is to ask your parents if they would be willing to loan you some money towards your deposit, or willing to go guarantor.
Being a home loan guarantor is not a request that should be made or granted lightly. If your parents go guarantor on your loan, it means that they will be liable for the loan if repayments are not made. To be a guarantor also means that your parents need to be able to demonstrate their own capacity to repay your loan.
Once you have managed to buy a home, of course, you still don’t really own it: the bank does. And by the way – make sure you compare home loans before you sign up as they can vary significantly in cost! Anyway – once you have your home loan it makes sense to get it paid off as quickly as possible. As an example, a $300,000 home loan over 30 years at an interest rate of six percent will cost around $647,000 by the time you pay it off. If you increase your repayments by, say, $300 per month though, that same loan would be paid off in 21 years at a total cost of $527,000. The same home, owned nine years sooner, and costing $120,000 less. That’s a good savings strategy! See for yourself and try out our easy-to-use Home Loan Extra Repayments Calculator.