Please note that first home saver accounts are no longer available.
MoneySmart asked the Barefoot Investor, Scott Pape, for his tips on buying a first home.
Visit MoneySmart at https://www.moneysmart.gov.au/tools-and-resources/life-events/buying-a-home#help for more first home buyer tips.
Scott covers topics such as:
– Advice for first home buyers.
– Is now a good time or should you wait?
– How much deposit first home buyers have to make.
– The best place to save your deposit.
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My advice to first home buyers is there’s no rush.
People get Hills Hoist envy and they just want to get in as quickly as they can, and there are all sorts of people who will try to encourage that. So real estate agents will say the most important thing with real-estate is location, location, location; I’ve got a different take on that and mine is that it’s safety, safety, safety.
You want to make sure that you’re prepared because two incomes become one, generally have to feed three. First comes the marriage, then comes the mortgage, then comes the midgets. We call it the triple-Ms.
How much deposit should a first home buyer have?
First home buyers should have a twenty percent deposit. The reason I suggest people have a twenty percent deposit is that way you’re not going to be hit with lender’s mortgage insurance: that insures the bank against you being a deadbeat and not paying. And it can cost you five, ten thousand dollars. That’s a cost for you to insure the bank. It’s madness. It’s a waste of money.
So, if you have a twenty percent deposit, and then secondly, you’ve factored in maybe a 1% increase in interest rates – just so that you know you’ll be safe regardless of what happens – then you’ll be ready for the debt olympics, for the biggest decision of your life.
What’s the best place for your deposit
The best place to save your deposit is with a first-home saver account. I absolutely love these. There is no way – no place I know – that you can get a 17% return on your money, government guaranteed. You don’t even get that with a credit card company in most cases. The sting is that you have to keep it there for four financial years.
If you want to buy a home before that, and you’ve got some substantial savings, I would suggest a high-interest online savings account. At the Barefoot Investor we would call them mojo accounts – because they pay a high rate of interest, they pay no bank fees. And it’s a little bit harder to get to your money, you’ve just got to transfer it over, so it gives you a little bit of discipline as well.
Is now a good time to buy?
Is now a good time to buy? Should people be waiting? Where is the property market going? Nobody knows. My crystal ball is not working. The main thing that I say to people – the only thing that I say to people – is that it’s the right time to buy your home when two things occur. The first one is that you’ve got a twenty percent deposit and you’ve done your sums. And second you’ve found a home that you really love and that you can afford.
It’s the biggest financial decision that you can make and the best one you’ll make, or the worst one, depending on whether you’ve got the savings there. For me, I don’t try and predict the market because you can’t. What I suggest people do is that they focus on what’s happening with themselves.
There’s all these bankers and mortgage brokers and real estate agents trying to encourage you into the sale, but they’re not going to be there in twenty years when you have to pay it off. You’re the one who has to do, so you need to make decisions on your own.