Owning your own home is a dream that most of us aspire to. The reality of living in a remote city with increased costs of living and high rental rates makes that dream difficult or unachievable for many people. How do you get to own your own home in Darwin and what are the main considerations when wanting to move from renting to owning?
We take you through the most relevant issues and things to consider when taking the step towards home ownership.
If you have been following or in the rental market for the past few years, you probably already know that rent has been on the rise. Darwin’s suburbs are top performers for the highest change in rents, for both houses and units, with an annual increase of 23%-30%.
With vacany rates at a multi-year low of less than 1%, most people are experiencing difficulty finding a suitable property to call home. Competing with dozens of other applicants and most properties exceeding weekly budget amounts is causing a significant amount of stress for most home renters.
If you are renting, have you had to move because your rent has increased or have you just had to cop the increase because you didn’t want to have to move again? Long term rentals hard to come by unless you can afford the ongoing rent increases or have a great landlord that has not taken advantage of the current market and increased the rent.
How do you save money for a house deposit while paying someone else’s inflated rent? Short answer is either very slowly or not at all.
Interest rate increase
As we all know by now the low interest rates we have enjoyed over the last 10 years are coming back up. Sounds scary but what is the reality when considering increasing mortgage repayments v’s current and increasing rent?
The average home loan for a first home buyer under the current First Home Buyer Scheme is about $522,500. The recent 0.25 interest rate increase will increase the monthly repayments by approximately $70 per month.
Another impact of the interest rate increase is the decrease in the amount of money the bank will allow you to borrow. For example, for every 0.25 increase in the interest rate, your maximum borrowing amount decreases by approximately $15,000.
Fixed rates are a good option to ensure your monthly repayment remains steady no matter what the current interest rate is, but fixed rates are significantly higher than varible rates so you will need to be sure you can commit to the higher repayment amount. It is also costly to break out of the fixed rate before the term ends so be sure you aren’t going to be moving, selling or wanting to refinance.
Based on an average 3 bedroom house you would expect to be paying anywhere from $500-$600 in weekly rent in Darwin.
Average monthly mortgage repayments based on an average loan amount of $522,500 and current average interest rate (2.50%) is approximately $477.00 per week.
Difference in lenders
All lenders are not equal, although you may be a long term customer with your current bank, they can’t necessarily offer you the best home loan or give you more than one option. Banks have different appetites, target demographics, different interest rates and credit policy requirements. While one bank may have a quick turn around, their interest rates may be much higher than another lender. Some lenders are flexible, others will not budge from their credit policy no matter how long you have been their customer.
If your current bank offers you great customer service but can’t give you any options or doesn’t participate in National First Home Buyer Schemes, then you should consider seeking the services of a Mortgage Broker who can find the right lender for you. Just because one lender says no, it doesn’t mean that another wont say Yes!
Plus, it is always better to have options rather than fit into one lenders policy. Don’t miss out on potential grants or schemes that will help you get into your own home sooner rather than later.
Most important factors
Adequate income – you need to be able to service the loan now and in the future taking into account a 3% interest rate rise (this is the buffer the bank applies to the assessment rate)
Accepable employment and employment history – lenders will want to see that you have a strong employment history to give them confidence that you will be able to repay the loan over the long term.
Savings – you must be able to evidence the amount of deposit/funds to complete the purchase when you apply for a home loan. A consistant savings pattern is highly desirable by lenders, and most lenders require a minimum amount of genuine savings (saved over a minimum period of 3 months). Having said that, you do have options with rental history and existing property ownership to bypass the genuine savings requirement.
Spending habits – lenders will look at your spending habits to determine if you can afford to repay the loan. Most people don’t think about how they spend their money until they are ready to start saving or apply for a home loan. The sooner you start a regular savings plan the better.
Unacceptable income or employment – most lenders have a minimum amount of time you must be in your current employment or be able to show continuous employment. If you have just started a new casual job most lenders won’t accept your income until you have been in the job for at least 6 months. If you are self employed, you need to have 2 years self employed tax returns in order to apply for maximum lending otherwise you need a 20% deposit or your income won’t be accepted at all.
Excessive or unusual spending habits – lenders require 3 months bank statements to be included with your application so they can have a look at your spending habits. Things like gambling, buy now-pay later purchases, account dishonours due to lack of funds are transactions of concern to the lender as they indicate irresponsible behaviour or living above your means.
Credit file issues are usualy cause for decline by the lender. A clear credit file essential as it gives the lender confidence that you are not likely to default on your repayments.
Non disclosure is the main culprit for a decline by the lender. It is important to let your bank manager or mortgage borker know everything about you so they can help you navigate any issues before a loan application is submitted.
Nurturing relationship and ability to apply
I can’t stress how important it is to have a good relationship with your mortgage broker or bank manager, as they can help you achieve your dream of owning your own home and keep your finances in the best shape over the life of your loan.
Having a reliable and trustworthy finance manager on call with any questions that arise will give you the support you need when things change either for the better or worse.
The Yes Money Approach
Put simply, we don’t mess around when it comes to getting loans approved. As specialists in construction finance, we know what it takes for the bank to say yes. We take the guesswork out of bringing the land, construction and government grants together to make your dreams a reality.
No messing around. No guesswork. Just simple, transparent solutions for everyday people who just want to own their home.