- August 23, 2023
- Posted by: legaleseblogger
- Category: Related News
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Is it Realistic to Buy a House in 12 Months?
At the moment, my partner (27), our 1YO child, and I (27) are gratefully living with my parents rent-free. However, we’ve found ourselves to be outgrowing the house and now plan on buying our first house by mid-year next year. We’re looking for a 2/3 bed house in the Hutt (Wellington) region at a maximum price of $700k. With this current behavior, is it realistic for my family to be first-time home buyers within 12 months? Should I be talking to a mortgage broker now or is it too early?
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Household Income:
In terms of income, my salary is currently $112k per year with a 3% contribution to my KiwiSaver. My partner is currently a stay-at-home mom, so there are no childcare costs at the moment.
Debts:
We do have some debts to consider. My student loan requires a payment of approximately $412 per fortnight, and I also have a car loan of $13.5k, with payments of $280 per fortnight.
Savings:
In terms of savings, I have $22k in my KiwiSaver with 3% contributions, while my partner has $25k in hers without contributions. We also have $7.5k in regular savings with a fortnightly deposit of $700, as well as $16k in InvestNow with a fortnightly deposit of $200 (allocated to 75% Vanguard International Shares Select Exclusion Index Fund and 25% Shartshares – NZ TOP 50 ETF). Additionally, we have $2k invested in random stocks through Sharesies, but these are not actively managed.
Total savings amount to $72.5k, which includes all the mentioned accounts.
Car Value:
The current value of my car is estimated to be around $23-25k. I am considering whether it would be more advantageous to sell the car, pay off the loan, and then purchase a cheaper car in the range of $10-15k. Safety is a priority, so finding a car with a good safety rating is crucial.
Partner’s Employment:
Furthermore, my partner is planning on returning to work part-time (3 days a week) by April, with an expected income of $60k.
Seeking Advice for Improvement:
Considering the information provided, I would greatly appreciate any advice or recommendations on what steps I could take to improve my financial situation and increase my chances of achieving my goal of buying a house within the next 12 months. Should I consult with a mortgage broker at this stage, or is it too early? Exploring options and seeking professional advice can help guide our financial decisions and provide clarity on the steps needed to achieve our goal.
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I’d speak to a mortgage broker about what you need to do to get into a position to be a home buyer because at the moment I don’t think you’re in a good position to buy in the next 12 months for a few reasons:
* You currently have ~10% deposit to buy a $700k home if you empty every account you have which is never a good thing, you always need an emergency buffer etc.
* You’re living rent free but are only contributing $700/fn to savings and $200/fn to investments so a little over $1,800/month.
* If you bought at 10% deposit your mortgage would be $4,200/month at 7% interest rates. This is ~75% of your take home pay each month which you’ll never be approved for.
* To get to 20% deposit you’d need to save another say $100k assuming you want to keep an emergency fund, so $8-$10k/month for the next year.
* Even at 20% deposit your mortgage would be $3600/month which is still 63% of your take home pay, still way too high.
To improve your situation you need to:
* Get rid of your car loan.
* Start saving more than $1,800/month.
* But mostly increase your income substantially which will probably require your wife getting back to work. If you suddenly had an extra $50-$60k take home pay coming in your savings potential would greatly increase as well as your ability to repay a mortgage.
Unfortunately our housing market isn’t suited to single income families anymore, and while $112k/annum is a great salary for an individual 27 year old, it isn’t a great total income for a household of three.
Edit: For context, my wife and I bought land and built a home for ~$800k total ending up with a mortgage of $650k so $150k deposit from cash savings while leaving ourselves a large emergency fund, investments, and a decent chunk of money that we have been putting toward landscaping etc. Since we moved in my wife has been off work with our newborn and I am the sole earner on $170k. We still live fairly comfortably but it hasn’t been a year of contributing much to our savings or investments and there has been a lot less nice to dos or nice to haves.
You need as much as possible for your deposit. I would stop the $200 p/fn investment immediately and put it into your savings account instead. Interest rates are good at the moment so you will still be getting a return until the money is needed.
The car loan and student loan will decrease the amount banks are willing to lend. I wouldn’t worry about the student loan too much as it’s interest free but it will affect your first home purchase. but make sure the car loan is paid off before you go to the bank. If you think an extra $10k will make a difference in getting your house then downgrade the car, however it might not be worth it as buying and selling cars is a hassle and you could end up with a lemon.
You might need to think about liquidating your shares depending on how you go with saving for a deposit so keep an eye on the market for a good time to sell.
As a family you need to be realistic about what your wife can earn if she goes back to work I.e. make sure it won’t all just be eaten up by daycare and travel costs. If it will be a positive cashflow, then she should go back to work before the lending application.
My other tip is to go through your bank statements and expenses for the past 3 months (as the bank will). See what you can trim down or cut out. It’s amazing how mindless purchases that aren’t necessary for day to day life add up, even small purchases under $20 can add up to another $100 available a fortnight. Doing this now means you can increase your savings for your deposit, and will help with future cashflow and lending criteria.
It’s doable provided your partner returns to work as how you have stated. Focus on a minimum 10% deposit. The rates will be high due to the low equity margin, however that is the trade-off in trying to entering the market earlier. I am assuming you and your partner will be entitled to a fhb grants which will help.
Don’t do anything to the car. Selling and rebuying as proposed will result in a net loss(should only be considered as a worst case scenario).
You can approach a broker now to get a plan in place so you have things lined up when applying for a pre-approval. Certainly doable so stay positive.
The car is going to be your main problem, get that cleaned up asap, looks like your on track to get it paid of within a year though assuming your not paying heaps of interest on it. I would never finance a car but in your position I would probably keep it.
Keep pumping your kiwisavers. It will help when your wife is back at work. Debt to income ratio for what you would be allowed to borrow I think is 6 or 7 times. ( 6 x 112k = 672k) so you might just be able to get a 700k mortgage, having your wife earning will surely get you over the line though. I think you could get it in a years time, you should sort a disciplined budget, if you eat out weekly then the bank will look at that as necessary so good to change those habits. Talk to a broker. Another note is you get better interest rates if you have a 20% deposit.
Update: forget my advice. Get a 20% deposit first and then start the process. You could aim a nice place in Naenae for sub 600k so def need 120k deposit.
Naenae area is quite nice. Me and my partner bought recently. You can have a cozy 2 or 3 beds place (renovated, stand-alone with decent garden) for 600-630k. We are in a quiet area and quite like it.
I would suggest to start the process now. Get a mortgage broker and see how much you are approved by banks. Then start shopping around. It can takes quite a long time, so def starts now.
You can also increase your KiwiSaver to at least 10%, then drop it back down to 3% after you purchase
Definitely talk to a mortgage broker, ours has been awesome, we were originally aiming to purchase around the same time but after working hard on our debts and high Kiwisaver contributions we’ve just managed to get pre approval for 800k.
Abit of background
Household income 140k
No dependants
Kiwisaver 50k combined
Cash savings 20k
Home start 20k
Debts
12k loan – was 22 at start of the year
Student loans 6k was 20k
Our broker came up with a plan which had us completely clear the student loan, and pay 6k towards my personal loan dropping it below 10k apparently this isnt seen as harshly as other debts.
I’d probably go see a broker.
But you will probably need to increase your deposit.
Look into the First Home Partner scheme, it might be useful
If you’re gonna buy I’d try and get in before the election. Nats are going to get in and they will allow foreign buyers back in the market.
This is what I would do, brought about 5 yrs ago.
Before going for a loan with the bank, get rid of your car loan, either sell your car and buy cheaper or pay it off from savings. Pay and cancel credit cards, back into he day it was about $8k less borrowing power for every $1k of credit card limit. Next hurdle is the fact you have a kid, that’s about $80k off borrowing power. Student loan isn’t counted.
Grab your total household income, if it’s just you working then it’s your income. Whatever lands in the bank account, multiple that by 6. So if it’s 100k then 600k, take off 80k for the kid, now it’s 520k is your limit or thereabouts to buy a house, talk to the bank. You can check affordability on an app for repayments, have 20% of that, don’t do 10%. If you can’t afford 10% you can’t afford a mortgage if rates go higher, like a safety of margin. Your mortgage payments should really only be less than 35% of the money that lands in your account. I think your Mrs needs to work part time, buy a cheaper house and don’t get stuck paying it off till retirement.
We did this, I was on less than 50k in my first job 2 yrs ago and knocked off 6yrs repayments and should be mortgage free after 13yrs, should be ready to trade up soon. Anyways, affordability changes so fill in the bank form and they work with you. All info IMO, just a random guy on the internet. Good luck