So confused, need advice!

RosieA · Feb 21, 2008 6:36 pm

Hi everyone,
I've been reading the forums for a while now and thought i'd finally post something...
Not sure if i should have put this in finance...

I'm so confused about the whole process so i thought i would give a run down on our situation and hopefully some of you could comment.

I live in Melbourne and am currently renting, and we are looking to buy land and build, We have about 5% deposit only, and haven't been saving for very long as we got our debt, ( car and CC ) out of the way first. My husband has a stable FT job and earns a decent wage. and i've just started casual work on weekends, also on a decent wage for the long hours. ( by decent i mean average decent, lol) So my first question, do you think we should just get something now with the 5% deposit (house and land package made up for us. or should we save for another 12 months. Considering we could save about 40,000 in this time. Land is going up in the area we want to buy and we could get both house and land for $300,000. A morgage broker seems to think we should be fine getting the loan, although i have only been in my casual employment not even 5 months and we haven't even been saving in our bank acc for 3 months yet...
second question, has anyone heard of or used RiverGum constructions? They have pretty competative house packages ( all inclusive). Finally Found a plan that we lilke and that suits us.

We have an appointment with the MB next week but i'm thinking of cancelling it, even for a couple of months just so the savings pattern is there.
Everyone keeps telling me just do it now, but to me it just seems more logical that if we could save that amount in a year we wouldn't have to get such a large loan, and costs aren't going to go up by that much..???
Should we secure some land now?
What would you do.. ?

TIA
Rosie

Cookiemonster · Feb 21, 2008 6:50 pm

RosieA

but to me it just seems more logical that if we could save that amount in a year we wouldn't have to get such a large loan, and costs aren't going to go up by that much..???

I think you have your answer.

vanderlay · Feb 21, 2008 7:07 pm

What about just buying the land now? The house you like or very similar will still be around for as long as you need, the land loan would be small and easily manageable for as long as you needed and you could work at paying that 40k off your land before you start building, giving you a much smaller loan in the end!

and you secure the block in the area you want!

Juts another option! :wink:

brittany · Feb 21, 2008 7:39 pm

Do you still have to pay a ridiculous amount of mortage insurance if your deposit is less than 20%?

stonecutter1309 · Feb 22, 2008 8:39 am

brittany - depending on how much.

talking to our broker - is said banks are pretty lenient if you have 18-19% deposit - but any less and you're up for mortgage insurance. It's also a sliding scale - the less then deposit, the greater the % of the loan as mortgage insurance you will have to pay.

dna · Feb 22, 2008 8:50 am

stonecutter1309

brittany - depending on how much.

talking to our broker - is said banks are pretty lenient if you have 18-19% deposit - but any less and you're up for mortgage insurance. It's also a sliding scale - the less then deposit, the greater the % of the loan as mortgage insurance you will have to pay.

Here's an online calculator that gives you estimates for LMI http://www.yourmortgage.com.au/calculators/mortgage_insurance/. We were facing the prospect of having to pay LMI when the original bank valuation came back $50K under of our costs. When we threatened to take our business elsewhere, they ordered a second valuation and it came back $10K more than our costs...

Yak_Chat · Feb 22, 2008 9:33 am

It's a bit of tough one to answer right now. With interest rates on the rise, and I think a bit more to go yet, and when they do - potentially house and land costs could moderate a bit - and maybe a few fire sales can be found as people move out of their too high debt houses - and as Melbourne has increased a lot in the past 12 months, you really need to look at the big picture and longer term possibles.

As per the rate calculator above - work out what the extras will be to do it with LMI - but it is better to have a bit more than 5%, because if you go in and take on too much debt, interest rates go up, and then things might get on top of you.
Vanderlays idea is on e option, but if land goes down - then you may have paid too much.
I'd do some analysis on the areas you looking at and see if they have increased already, or have some room for growth.
My thoughts
Steve

Cabinfever · Feb 22, 2008 10:20 am

The more money you can start with the better. And if your savings rate is far in excess of the rise in housing costs, then it's logical to wait. Use this year in research so you can move fast and decisively when you do decide to go ahead.

Estimate how much you'd want to borrow, calculate the mortgage cost and save at least that amount every month to simulate the joys of home owning.

And don't fret about 'missing out' on some favoured location. There's always another house around the corner.

RosieA · Feb 22, 2008 10:52 am

Thanks everyone for your replies. very helpful.

Forgot to mention. That a loan of this size, we could pay back double the weekly repayements at around this interest rate. So i suppose it makes it more doable. The MI works out to be around $4000 ish.
re; land prices, we have decided to build in a cheaper suburb/where the land prices have gone up recently, with the huge surge in people buying and building there, but is still cheaper than anywhere else.
I think we'll just sit and watch, even 6 months would be better to get an idea whats happening. i think if land prices go up we will put a deposit on just the land . So for now i'll just have to continue watching the progress of all your builds and projects :wink:

Thanks again
Rosie

3timesbuilda · Feb 22, 2008 11:22 am

House prices have gon up 23% in Melbourne in the last year!!!! Quick Buy!!!

Now seriously, the vast majority of that increase has come from inner more expensive suburbs.

Intrest rates are definetly going up and by as much as 4 times. Repossessions are up and going up more. Really it is only a matter of time before we see a drop in pirces in the outer suburbs as happened in Sydney. All the logic points in only one direction - DOWN. Irrational human behaviour may delay things a bit but ultimately the fall just gets bigger.

I have been optimistic about property for 10 years now but I think the straw that breaks the camels back is comming and soon.

Save, save, save and be ready to pick up a bargain when the time comes. Don't forget high intrest rates are good if you have savings. Don't be the sad case who picked up a property at the height of the price boom because you are scared and land up with a property worth less than you paid for it and a mortgage you struggle to afford.

I have been thinking of buying an investment property for a while now but have decieded to hold off so I can get a bargain. Look at the market prices, intrest rates and go from there.

enigma_brennan · Feb 22, 2008 1:32 pm

I agree with Vanderlay, try and buy some land now with a delayed settlement if possible ie. in a new estate. As land is where the real gamble is - its appreciation may well outstrip inflation whereas the cost of building tends to follow inflation, give or take a little.

We purchased some land last October in a new estate with a delayed settlement (the land will be registered late March). At this point we had no savings (having two kids over the previous 3 years tends to do that to you), but no debt either. Hence, we had to apply for a 100% loan to get our 10% deposit bond.

Meanwhile, we have been saving hard (and have also been fortunate enough to see our land appreciate a little). Hence, we are looking at 90% LVR at settlement for house and land! If we had waited and just saved hard we would, at best, be looking at 95% LVR for a similar package and, of course, much higher mortgage insurance.

Also, in the meantime, my wife's length of employment has increased (she took time off to have the children) as has our genuine savings record. Hence, we have been able to shop around a lot more for our loan to ensure we get a good deal.

Good Luck

3timesbuilda · Feb 22, 2008 1:43 pm

When property prices drop, it is the land that loses value, the house has a fairly fixed value. Buying land is quite risky in todays market. A year ago, I would have suggested the buying land option but not anymore.

Casa2 · Feb 22, 2008 1:45 pm

I agree with Vanderlay. Also, as land and established house prices drop, so will demand for new houses and these should also drop (at least in real terms).

VJ · Feb 24, 2008 4:32 pm

When we saw a very nice block, even if I was just starting to work (stayed at home to look after my kids for 3.5 years), we put in a deposit to secure it. Settlement was after 6 months, so we were able to save more.
After just 2 years, the valuation for the block increased by almost 50%!

Then we started building after 2 years from land settlement, when we have more savings to be able to afford the house that we want.

stonecutter1309 · Feb 25, 2008 12:19 pm

Though it depends on where your land is. Yes - prices in Sydney's south west, west and north west have been dropping with mortgagee sales.

However - in the trendy inner suburbs, prices are going up - same with any home with water views.

ahuang · Feb 27, 2008 11:57 am

I agree with Cookie, you already answered your question...
If i were you, I would certainly build up a bit more deposit first, after that:
1) you will be more confident about your saving pattern
2) you mortgage repayment won't be that high
3) with higher deposit you chance of getting better rates should be higher

One other thing, if you always been renting, wouldn't it be a bit risky to jump straight into building a new house?

How about buying an existing house? At least you don't need to go through the long painful process of finding builder, waiting for council approval, praying for the rain to stop during your construction, ....etc. Don't forget that during this long period you still need to pay your rent!

RosieA · Feb 28, 2008 1:40 pm

hi all.
thanks for all your comments

At the moment we are deciding whether to go ahead and put a 'refundable $500 deposit on land and $500 on house, as land is is huge demand in the estate we are trying to get in to. (next stage of selling is about $20,000 more expensive. If we do this, then we can basically wait and save for 6 months until the land is titled, then another 4 months before costruction begins, and 4 months for construction. So we'll still have a while to keep saving nd at least then we'll only need a $250,000 loan instead of $300,000.
Does this sound like a good idea?
This is with Watersun homes, anyone heard of them or used them? would love some feedback as i can't find any reviews etc...
Thanks again
Rosie

enigma_brennan · Feb 28, 2008 2:14 pm

Hi Rosie, this is exactly what we did 6 months ago and we have no regrets. In fact, the further down the track we have gotten the more exciting it has become. Enjoy the journey!

As for Watersun homes sorry I can't help you there.

enigma