We met with a mortgage advisor at the bank today to look into how much we would be able to realistically borrow, to enable us to focus our search with a more accurate price range. Barnadi went straight in saying we hoped to get a $400-$450k house, where as I simply wanted to know how much they would be willing to lend. They explained the standard mortgage arrangements were for a 20/80 split with 20% deposit, stamp duty and loan insurance paid up front and the 80% making up the loan. For a $400k house however that would mean we would need at least $90k saved up, and as we were considering starting the search by January next year this was not going to be possible. They then explained they could do a 95% loan as long as the loan insurance didn't constitute more than 2% of the total cost, which in our case it would. This means for us to be able to buy a $400k house we need to save up a minimum of $20k before January. We are currently putting $2k aside each month into our savings account, although the bank thinks we could probably get away with increasing that to $3k with no loss in quality of life. We would need at least 3 months of consistent savings to prove to the bank we can be capable of saving that much. Even if we save $3k a month we would only have another $15k by January, not the $20k we would need, this means we might have to consider bringing over our savings from the UK, which Barnadi is very much against. The size of our deposit will also be effected by the money we currently have invested in shares, if that goes up it will be a great help, but if it goes down we will have to wait even longer before we can consider buying. The most positive outcome of the meeting however was when we got onto discussing repayments. Over a 30 year period we would be paying back a monthly amount equivalent to our current rent, but by increasing the monthly repayments to $3k, something we could comfortably afford, it would cut the loan period to 17 years and cut the interest paid back by more than half.
Our only other debt at the moment is our car loan as we always keep our credit card balance clear and I completely paid off my student loan not that long ago. The next biggest expense we have would be travelling, and unfortunately as more and more of our friends in the UK announce their engagement this is not an area we will be able to save in, at least not without upsetting a lot of people in the process! After travelling the next most expensive thing in our lives is the rent, but unless we want to go homeless we can't cut back on that. Equally the utility bills are quite fixed and necessary, so we really are saving all we can. So short of winning the lottery we will not be ready to buy a house until halfway through 2013, by which time house prices may have risen and mortgage deals worsened and we'll find ourselves back at square one.
So now "plan 2" is more than just a pipe dream, we have a much more realistic structure to what we must do and how much we must save in order to get our feet onto the property ladder, and although it may take a little longer than we had hoped, this is not entirely unexpected. All in all, a positive outcome.
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