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How to Own Your First Home Sooner

First Home Owners

There has been much talk of late in real estate and property circles, particularly in Sydney, about the rise and rise of house prices and the issue of affordability. Or should I say lack thereof.

According to a recent CoreLogic report Sydney’s median house price reached $850,000 in April after posting 15.5% year on year growth and many property experts are predicting even further growth to come.

And so as Sydney closes in on a $1,000,000 median house price it’s not surprising at all that questions are constantly being asked about the issue of affordability.

How much deposit do you need to buy your first home?

While saving a 20% deposit for a home will mean you avoid mortgage insurance, many lenders will lend on as little as 5% deposit subject to the following criteria:

  • Good savings history
  • Clear credit record
  • Sustained employment
  • Ability to make repayments

It’s the savings history that takes the longest to establish and causes the most anguish with would be first homebuyers, particularly with median house prices where they are today.

After all when you’re just starting out and in your early earning years saving $100,000 for a 20% deposit to buy even a $500,000 property can seem overwhelming and at times almost unachievable.

Buying your first home in the Sydney property market

The issue of affordability resonated with me a few weeks back, when I was showing client’s who were downsizing their principal place of residence through a prospective property when their son stopped to ask me a question.

With his parents paying in excess of $1million to down size 35 kilometres from the Sydney CBD (yes that’s correct), he shook his head in despair and enquired ‘How does someone like me who has never bought a property have any hope of getting into the market?’

Well despite how daunting it might seem and how hot the Sydney property market is right now, there are some tried and true ways to fast track your path into home ownership.

4 ways to fast track owning your first home

Here are a handful of recognised ways that can allow would be first home buyers to gain access to their first home sooner.

  1. Co-ownership: By teaming up or joining forces with someone else or others (life partner, siblings, friends, relatives) you can save on just about everything. The deposit, stamp duty and legal fee’s, amongst other things, can all be shared according to whatever the agreed spilt might be. Remember though that circumstances can change over time, so you will need to be very clear from the outset on what your expectations are, how it will work and what is the agreed exit strategy. The two most important points to consider before dealing with co-ownership are:
    • seek independent financial and legal advice before proceeding so you fully understand what you are getting into
    • have the terms of the arrangement clearly documented
  2. Gift: Relatives often help out other family members when they are starting out buying their first home with a family guarantee. Parents, grandparents or relatives who have liquid assets may ‘gift’ a deposit to help fast track a purchase. Where this is the case it is important that everyone understands the situation and if it really is a gift or there is an expectation that the deposit needs to be paid back at some point. Lenders will take a particularly close look at this.
  3. Guarantee: Typically a guarantee is provided by another family member to allow a would be first homebuyer to purchase their first property sooner. A guarantee is very different from a gift. It works by allowing a lender to use equity in someone else’s property as additional security for a loan. The guarantee can be limited to an amount (say 20%) and does not need to be for the full loan. And importantly, once the property the subject of the guarantee goes up in value sufficiently, the guarantee can be released.
  4. Lenders Mortgage Insurance (LMI): LMI is a form of credit risk insurance that protects the lender in the event a borrower defaults on their home loan. It allows people to achieve their dream of homeownership sooner when they don’t have a large deposit saved. LMI is a fee charged by lenders when someone has less than a 20% deposit saved to purchase a property. While it can be paid up front, in the majority of cases it is just added to the loan. I bought my very first property with just 5% deposit and had to pay LMI and have never looked back.

For more information and insights on buying a property in Sydney as a first homeowner contact an Albion Avenue buyers agent today.

If you liked this article perhaps you might also like to learn how to avoid making mistakes as a first home buyer.

Shelley Horton is the founder of Sydney based exclusive buyers agency Albion Avenue. With a 20 year career honing her skills in every aspect of the property industry Shelley knows what makes a property worth buying and how to get the best deal.

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