Teach your adult kids the home buying basics
With interest rates at record lows and the housing market stalled, now could be the right time for first homebuyers to take the plunge. If your adult kids are renting, or still living at home, here’s a quick guide to home buying. It could help them take that first big step towards property ownership.
How much can they borrow?
Before your kids even start to look at houses or apartments for sale, they need to know what budget they have to work with. Knowing how much they can borrow (also known as borrowing capacity) is the first step. Most banks have online calculators to provide a rough estimate of what they can borrow, based on their income and weekly expenses. If you need a more accurate figure, it’s worth talking with a home loan specialist from your bank. They’ll look at an ability to pay off the loan and see if the borrower can afford repayments should interest rates go up a few points.
How much of a deposit will they need?
The deposit your kids need will depend on a few factors, including the purchase price and their individual circumstances. The size of deposit is important because it may help them avoid paying mortgage insurance. In most cases, 20% of the purchase price as a deposit is sufficient to avoid paying lender’s mortgage insurance. If they’re prepared to pay the mortgage insurance, they may find some banks willing to lend with a deposit of 5-10% of the purchase price – depending on the type of property. A guarantor on the loan may be another way to avoid needing to have a 20% deposit.
What is Lender’s Mortgage Insurance?
Lender’s Mortgage Insurance (LMI) is designed to protect the lender if the borrower can’t maintain the required loan repayments. It is usually required by lenders if a deposit is less than 20%. The cost can vary with each lender and depends on the value of the property.
What costs are involved in buying a home?
It’s crucial that your kids understand all the costs involved with buying a home beforehand. And there are quite a few. The main costs of buying a property include state government stamp duty, Lender’s Mortgage Insurance, building and pest inspection reports, strata search costs for apartments, conveyancing fees and loan application fees. There’s also the costs to connect utilities like electricity, gas, internet and the phone, moving costs, as well as home and contents insurance. Don’t forget you may even like to give your new place your own personal touch with new curtains, blinds and a fresh coat of paint.
Is there a government assistance?
The good news for first homebuyers is that there is some government assistance available in the form of the Australian Government's First Home Owner Grant. The grant varies with each state so it’s worth checking if your kids are eligible.
By following the basics, your kids could soon be moving out of your home and into a place of their own.