Family help

JEREMY CABRAL

When it comes to getting a home loan, there are a number of considerations determining how much you can borrow, including your salary, upfront deposit and monthly expenses. HomeLoanFinder.com.au will calculate your gross debt servicing (GDS) ratio, which the Mortgage and Finance Association of Australia suggests for single income earners should not exceed 35% and, for joint income earners, 40%.

With Georgia’s income of $52,000 and expenses of about $15,000pa, her borrowing power is around $210,000. With the average price of a home in Sydney $642,000, she would have to significantly increase both her income and deposit amount to have a chance of buying a property. A 20% deposit on a $642,000 property is $128,400, triple her current deposit.

It is unlikely Georgia could afford an inner Sydney property, even with a $40,000 deposit. Options such as mortgage insurance can help. However, in a situation where she is already stretched, it may not be enough. It’s best she continues saving a bigger deposit and has some patience before making a decision to enter the market.

Australian Property Monitors’ list of suburbs and media property prices is worth monitoring. When Georgia is ready to buy she may need to consider the Greater Sydney region with median prices below $300,000. At the $300,000 mark and an LVR of 80%, Georgia would require a deposit of $60,000 without lenders mortgage insurance (LMI), less than half what she would need for an inner Sydney property.

A lot of people in a similar situation to Georgia ask their parents for some assistance by becoming a guarantor for the loan. This will involve her parents using the equity in their property as additional security for her home loan.

This could save Georgia thousands as it could eliminate the need for LMI and help her maximise the amount she can borrow. Making up the deposit gap to 20% of loan value and working on having at least six months’ worth of solid savings history to show discipline will always help when negotiating with any lender.

With first-home saver accounts, the government makes a contribution equal to 17% of your contributions in any given year (capped) and the added benefit is you don’t have to pay tax on any interest you earn.

Once you’re in a position to borrow for a home loan, make sure you compare lenders and seek financial advice before making any decisions. There are a number of free home loan comparison services.

Should Georgia manage to save a 20% deposit, this would create more opportunities for lenders to offer better rates. Some online-only lenders offer comparison rates below 5.5%pa.

Jeremy Cabral is publisher of finder.com.au financial comparison websites, including homeloanfinder.com.au

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