Browse Forums Home Finance 1 Jun 12, 2009 6:33 pm Ok so might seem like a bit of a weird thread, but my Mum has asked me to ask others opinions as she (and I) are a bit worried about my brother and SIL. They purchased a block of land for $160k earlier this year. They have no other savings, they currently live at my Mum's and will continue to do so until they build their home. Pretty sweet deal and a great opportunity for savings I think. Anyway they aren't on a huge way - probably $70,000 per year between them. My SIL is 30 and wants to have children - they currently have none. They are looking at houses to build and I must say my SIL has expensive taste. I have tried to tell her it is her first house, that the base price is only a rough guide that there will be heaps of costs after the build but she doesn't seem to really understand. So far they are looking at a house with a base price of $240k, I told them once it was complete they would probably be looking at around $300k - so in total a loan of $460k including the land. Is a $460k loan on a combined income of $70,000 achievable? Considering she wants to have children (she says 4 ) so they will need to factor in the time she will have off work when they are cut down to one income. Mum and I are very concerned they are going to go into a huge debt and we think they should be looking at a hosue with a base price of around $140k and finishing it off at around $200k, so there loan would only be $360k... Any help would be great, we are trying to provide them with as much information as possible so that they are better informed. My karma ran over your dogma Re: What do you think? 2Jun 12, 2009 6:39 pm If interest rates return to 10% in say 5 years - when kids are in tow, they are looking at payments in excess of $1,000 per week... and they only earn $1,400 gross with 2 wages... It will be tough... Ed Edit - sorry, I guess the land is already paid for, so make that $750/week in repayments "ECOECO" At 'EcoEco', we design windows, we design the best windows, we do it for you, so that when you’re happy we are happy. Tel. 1800 326 326 Re: What do you think? 3Jun 12, 2009 6:41 pm At the moment their mortgage repayment would be approx $2700 per month and like Ed said, if rates go up again then that could double. This alone should be incentive enough to take a much lower home loan. Blog: http://bluemistkids.blogspot.com "Never be afraid to try something new. Remember, amateurs built the ark, and professionals built the Titanic." Re: What do you think? 4Jun 12, 2009 6:42 pm Thanks Ed and Hels. That is exactly what we are worried about... They think because the bank is offering them a $460k loan they should take it! I have tried to explain that the banks are not on their side Can I ask for a couple on around $70,000 what is your home loan and are you able to comfortably able to make the repayments? My karma ran over your dogma Re: What do you think? 5Jun 12, 2009 6:45 pm a few thoughts.... how much do they still owe on the land? Bank will probably limit their borrowing to something more realistic anyway - by the time valuations etc done as posters on here have found - which may disappoint them but probably in their best interest in the long run. many studies have shown a big difference in the number of children people say they want before they actually have any and the number they actually have - mostly less in reality ( in other words that problem may well solve itself too) I think it is really careing of you to worry for them but there is only so much information you can give them if they do not want to listen (can lead a horse to water and all that) obviously people have different priorities in life - much as I love my parents, I would not fancy liveing with them again - and I would much rather get into a smaller cheaper place quicker and have my independence. thats just a comment about me, not a judgement of your rellies Re: What do you think? 6Jun 12, 2009 6:46 pm A lot of people are in your bro/sil situation. Although the expensive taste doesn't help, they really don't understand how difficult things can get. Try and point out these potential negatives really carefully so they don't take offence. See how they respond and whether they have even considered these things. You might be surprised about their responses, and I guess at the end of the day, it's their decision. Also, although they are paying $$$ on their current loan on the land, that too will be getting capital growth as we speak. Perhaps it is forced savings, but at least it's something. THey can always sell in the years to come (with a house on the land, or just the land) and perhaps downgrade to a more affordable option. I think you will find that when they have time to think it thru, they will make the right decision for them, including affordability. Annie A thankful person is a happy person. [/color]My hobby design blog: http://aviewondesign.blogspot.com/ Re: What do you think? 7Jun 12, 2009 6:50 pm Do a budget of what they spend now... then do it with kids and one income (or childcare), and then do it all again with a home loan at current rates and then again at 10%... it's impossible, even food will be tight. They must see a financial counsellor... "ECOECO" At 'EcoEco', we design windows, we design the best windows, we do it for you, so that when you’re happy we are happy. Tel. 1800 326 326 Re: What do you think? 8Jun 12, 2009 7:38 pm Thanks for your responses everyone I'm glad my Mum and I are not worrying over nothing...I think they certainly need to see a financial advisor. If they didn't intend to have kids I think they could just afford it, but cutting back to one income and throw in the expenses of monthly bills and food and I think they would be well over their heads. I think they will make the right decision, at the moment understandably they are dreaming of having the ultimate for their first home. I did the same thing so I can't blame them My karma ran over your dogma Re: What do you think? 9Jun 12, 2009 7:46 pm haywgl Thanks for your responses everyone I'm glad my Mum and I are not worrying over nothing...I think they certainly need to see a financial advisor. If they didn't intend to have kids I think they could just afford it, but cutting back to one income and throw in the expenses of monthly bills and food and I think they would be well over their heads. I think they will make the right decision, at the moment understandably they are dreaming of having the ultimate for their first home. I did the same thing so I can't blame them Yep, me too, then a small change in circumstances and we starved... "ECOECO" At 'EcoEco', we design windows, we design the best windows, we do it for you, so that when you’re happy we are happy. Tel. 1800 326 326 Re: What do you think? 10Jun 13, 2009 12:34 am Sound like they would be way over the ratio of lending and as lenders get tougher I think their dream may never happen. One assumes that they do not own the land outright.? They should be aiming for a total figure a lot lower as you suggest. Re: What do you think? 11Jun 13, 2009 11:04 am I would be really concerned about them too! Me and my DP earn a little bit more then that a year.. but we have chosen a house with a base price of $158k which has ended up as $200k plus our land which was $173k. We both have personal debt (car loans) and we know it will be really tough for the first four years and are praying that interest rates don't hit the roof and that we can build some equity to consolidate some of the debts to ease the cashflow if the rates did go crazy. Concidoring they earn less.. i would definately be worried.. explain to them that while it's good to dream.. sometimes it's better to be able to live comfortably with a smaller less optioned house then to live in a bigger house with all the options and be eating baked beans on toast every night in your kmart pj's on your vinnies furniture. Some people don't realise that interest rates DO RISE. They may be able to 'afford' it now.. but in another couple of years? It could go sour. Also if she's planning on having kids.. what will they do when she needs time of work or wants to do part time? I'd plan around the mortgage repayments if she wasn't to have an income at all. Sometimes you just have to give them lots of information and let them make their own decisions though.. I'm sure they'll make the right choice!! Building with PD - Regent 23 Cascades on Clyde Estate HomeOne Building Thread - PCI Completed - 28th August. Handover - 11th September. Re: What do you think? 12Jun 13, 2009 11:32 am Charles Dickens had this to say... Quote: "Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery." Ed "ECOECO" At 'EcoEco', we design windows, we design the best windows, we do it for you, so that when you’re happy we are happy. Tel. 1800 326 326 Re: What do you think? 13Jun 13, 2009 1:16 pm My partner and I are on between $80 -$100k per annum (depending on bonuses etc). We do not want to borrow much more than $380k - $390k as we would not have enough of a buffer if rates did rise. For example repayments per fortnight (390k @ 5.11%) = $976. If that goes up say 3% ($390k @ 8.11%) = $1,330. Re: What do you think? 14Jun 13, 2009 9:31 pm Thanks for that everyone - it really helps to get an idea of what others are doing. I would say a loan of $400k tops for them, but realistically think they should stay closer to $350k. They do not own the land outright, they have only put down a $10k deposit, which wiped out all their savings, they have nothing left now, but are starting to save again. I should also add my SIL has a flat which she purchased before she met my brother, she has paid about $50k into it and they do plan on selling it as at the moment the rent she is getting from it does not even cover the interest on the loan. So they will probably get $50k from that which they would wack straight on the loan, but even so I think they should still stick to about $350k especially given they are going to survive off one income when she does decide to have kids. I figure then the land is $160k + $200k for house = $360k, take the $50k if they sell her house leaves them with a loan of about $310k on a combined income of about $70k, seems much more realistic and manageable to me My karma ran over your dogma Re: What do you think? 15Jun 14, 2009 11:05 am haywgl Can I ask for a couple on around $70,000 what is your home loan and are you able to comfortably able to make the repayments? I'm on more than that and my total mortgage (house and land) is about $350k. I could have gone a LOT higher, but I have plenty of comfort space in case interest rates go up. My repayments will be about $1850 on the current interest rates. If $70k is their total combined income, there is no way they should be spending the amount they are looking at, I wouldn't even spend as much as I am if that's what their combined income is especially if they plan to have kids. 'A bottle of wine contains more philosophy than all the books in the world.' Louis Pasteur Vegie garden: viewtopic.php?f=19&t=27637&start=0 My Backyard Adventure Re: What do you think? 16Jun 15, 2009 9:59 am haywgl Can I ask for a couple on around $70,000 what is your home loan and are you able to comfortably able to make the repayments? For myself and my partner, with a total income of $70k, we were only offered a max of $315k from a major bank. Even then, the repayments would be half my net pay, so I borrowed $40k less. That is what I would consider comfortable. On $70k, net income is around $1000 per week (maybe a bit higher for them if their income is distributed between them evenly). If they borrow $460k and rates rise to near 10% (like they were as far back in ancient history as... 2008) they'll be living on less than $90 per week. Any higher than that and they'll be unable to make repayments at all. Unless they have reason to believe rates are staying at 5% for the next 30 years, I don't think they've thought it through. Re: What do you think? 17Jun 15, 2009 3:39 pm I'm a single dad, and earn a fair bit more than 70K, but it evens out at around 70K once I take away child support. So I'll chime in with what I'm doing... For myself, I didn't want a total loan of more than 230K for my first house. I looked at the FHOG, and then my savings, and estimated I could spend around 270K total to achieve my goal. This turned out to be a 3 bedroom house on a 500m2 block... Basically, the "base" house, with very very few upgrades at all (I had to be realistic). (108K land, 12K site costs, 150k house). As it turns out, since I've been saving like crazy, my final loan will end up being less than 220K all up. I too think your brother and SIL need to seriously re-evaluate their situation! There is no way whatsoever I could afford a 400K+ loan on my salary. Re: What do you think? 18Jun 15, 2009 3:44 pm Perhaps also a reality check on the cost of raising children would help them? Isn't it something like $250 000 over a lifetime per child? Renovating a post-war house in Brisbane | On the first rung of the property ladder Re: What do you think? 19Jun 15, 2009 4:00 pm Raising children *can* be very expensive, but it all depends on how you do it - expensive private schools, expensive child care (etc). Actually, from experience - child care is a killer - it's a huge weekly expense (say $150-$300 a week). You have to look at the different options - having your partner work and possibly losing most of that in child care, or one of the parents leaves work for a few years to raise the kids, so they live on the one salary. So if the SIL wants kids, I'll bet she also wants to stay home to raise them... so that combined 70K salary will suddenly jump down. Then look at increased bills since she's home 24/7, the central heating is on more so the baby doesn't catch a cold.... you get the drift! Re: What do you think? 20Jun 15, 2009 6:15 pm Exactly! All the points everyone makes is exactly why we are worried for them!! I feel like printing out this thread and showing it to them, but I don't want to make them feel like we are attacking them I just think that when it comes down to a single wage of about $40k there is no way they can have a huge loan like that. I think they could afford about $350k loan, and with the $50k they should get back from her house it would make it about $300k minus whatever they manage to pay off on the land before they move out of Mum's My karma ran over your dogma No. It's not original. Circa early to mid 90s would be my guess and maybe even as late as early 2000s 1 6632 Looking to start the journey of becoming an owner builder in SA. Feeling pretty (overly) confident on the building and construction details, but really struggling to find… 0 8419 A question. Im in Queensland and building a new home. We managed to reach practical completion 6 weeks ago but we haven't heard any date for handover yet. Who should we… 0 5807 |