So….you worked your way through the last episode and now you have an awesome budget. But where to from here? How do you reach the elusive dream of owning your own home either for the first time but more likely – again?
This is where our budget can help us…..and I’m not saying it’s going to be easy – nothing in life that we want is, but you will have the tools and steps you need to start making the dream a reality.
The first step is to work out how much you need. There are still a lot of Financial Institutions that will allow a 5% deposit. The downside, is that unless you have a 20% deposit, you need to pay Lenders Mortgage Insurance (LMI) to protect the Lender against the added risk. However, these days, it’s quicker to save your small deposit and build the LMI into the loan as this works out to be around another 3-4% of the purchase price instead of having to save up the full 20% deposit.
Let’s look at an example:
$350,000 purchase price – 5% deposit = $17,500, plus 1-2% for stamp duty and other fees plus the LMI of approximately $11,500. You will need $36,000. If we had to save the 20% deposit, we would need $70,000 – around double the savings, and that is without our stamp duty costs.
Once we know what we need, how on earth are we going to get there? Let’s scrutinize our budget. What does our income look like – have we got 2, or only 1 income? The first question you need to ask is – who is involved in this decision, just you or a partner and /or children? If you are not the only person affected by this decision, you need to discuss it with the other parties involved because it won’t be easy. This will involve some sacrifice and not everyone might be as excited as you, about doing that.
Back to the budget…..so we are all on board, let’s go! Start by placing an “F” next to all the fixed costs, meaning items that absolutely cannot be deleted but could be reduced eg: rent, electricity, food, water and phone. Next, put a “V” next the variable costs. These are items that could be deleted if we really really had to – Foxtel, Private School Fees, Gym memberships, entertainment/hobbies. Don’t forget things like extra Superannuation contributions.
Start with the “F”’s – is there anyway we can reduce these amounts? Now look at the “V’’s. This one is harder. How much are we willing to give up or sacrifice for the goal and how long are we going to have to sacrifice these items. Let’s remove some and work out how much spare money we would have per month, and would that then mean that we might be able to live on 1 wage instead of 2? What could we sell to bring in a quick lump sum? Do we have any debts that we could eliminate if we sold something and bought a cheaper one eg: a car? Could we get a temporary 2nd job to earn more money? This will determine how far you are willing to go to reach the goal and it will also determine how long it will take.
Just remember to start small and work your way up. Make sure you choose a property where your repayments will allow for extra cash to be used to make more than the minimum repayment and pay the loan off sooner.
You are well on your way…….
Credit Advisor
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