Owning your own home is the great Australian dream – but it can now seem out of reach for people trying to get into the market. Here are six ways you can get in, without getting over your head.
First Home Saver Accounts
Like a buying a home, the First Home Saver account is a long-term commitment.
ME Bank explains that it means you could “earn up to 20.25 per cent per annum because the federal government makes a 17 per cent contribution on the first $6000 you deposit each year plus interest from your bank, which in ME Bank’s case is 3.25 per cent per annum”.
The catch – and it’s a big catch – is that the account must be in use for four years before the money can be accessed and that money must be used to buy a home. So if there’s a chance your life plans might change in that timeframe, the First Home Saver Account is probably not for you.
The bank of Mum and Dad
There’s a lot of controversy about how long Gen Y is staying at home – and it’s becoming increasingly popular for parents to use that home to kick them into the next house.
Mortgage Choice spokesperson Jessica Darnbrough says brokers are seeing more first home buyers using equity in their parents’ home to guarantee part of their loan. This means as a first home-buyer you don’t have to save as large a deposit and could also avoid paying mortgage insurance. On the downside, it also means you’ll be indebted to your parents.
Sharing a room with your sibling might be passé but buying a house together is becoming more common – taking half the pain away from getting into the property market. However, whether buying with a sibling, partner or friend, it’s crucial to recognise the two differing features of co-ownership. You can either go for a “joint tenant”, meaning if one person dies that person’s interest automatically transmits to the survivor, or “tenant in common”, which means you own separate interests in the same property and can bequeath your interest to whoever you like.
Mortgage Choice recommends talking to a solicitor – just in case things go sour.
Buy in an outer area
The Real Estate Institute of Australia (REIA) says location is your most important decision in buying a house – particularly with outer and rural areas. Buying your first property as an investment means you’ll miss out on the first home-owners’ grant, but it may be beneficial at tax time.
REIA chief executive Amanda Lynch warns it’s very important to do your due diligence – buying in a cheap area may mean you miss out on rental returns.
“Traditionally, investors favour inner and middle suburbs of Australian capital cities. However, however rural areas may bring very attractive returns and should not be excluded,” Ms Lynch says.
Interest only loans
Typically the domain of investors, interest only loans are becoming more favourable to first home-buyers. Mortgage Choice says it should only be used for affordability measures.
The REIA says home-buyers should clearly understand that paying for interest only home loans means that they are not building any equity of the property and should not be considered as a long-term strategy.
Purchasing off the plan
The bricks and mortar might be a while away, so buying off the plan gives a first home buyer a little more time to save for a deposit. The added benefit is that in some states and territories there are extra benefits for buying new homes or apartments.
In South Australia, buying an off-the-plan apartment in the CBD means you won’t have to pay stamp duty, plus you’ll also get the first home buyers’ grant. However, the REIA warns that the inability to inspect the property prior to purchase is a big disadvantage and is a risk taken when purchasing off the plan.