Household budget tips
Moving to Australia? 2 Things You Need to Know About Home Ownership
How exciting for you and your family to be moving to a new country to live! A big decision you need to make before you arrive in Australia is the location where you want to live, and whether you will rent or purchase your first Aussie home. Home ownership is an interesting challenge for newly arrived migrants, so these are the two main facts you need to know. Are There Restrictions On Home Ownership Based On Visa Type? The first thing you need to know about buying a home in Australia is there are restrictions on what you can and cannot purchase. The Foreign Investment Review Board is the government agency tasked with making sure that foreign investment in Australian property is kept at a level which does not inflate the cost of house prices and keeps home ownership within reach of the average Australian. FIRB rules regarding home ownership in Australia include: Any person wanting to buy a residential home in Australia who is not a permanent resident must apply for approval from FIRB before signing a real estate purchase contract. Special category visa holders, such as New Zealand citizens, are exempt from this approval. Purchasing a home with FIRB approval is limited to certain types of property. For example, you can purchase a vacant block of land provided you start building a home on it within 12 months. Or, you can purchase a brand new property in a new development provided it has never been occupied before. What you cannot do is purchase an existing residential property unless you plan to redevelop it in a way that will lead to an increase in the supply of housing on the Australian market. While the redevelopment is being done, you cannot live in the property. An application to the FIRB is done by completing an online approval form and it can take up to 30 days for approval to be granted. If the FIRB declines your application, you will need to rent a property until you obtain permanent residency status. Permanent residency is not granted until you have lived in Australia for two years. Once you obtain permanent residency status, you can buy and sell any type of property without approval being needed. How Do You Arrange Finance for a House Purchase? Once you have FIRB approval to purchase a house, you need to find a lender who is prepared to give a mortgage to a person who has just arrived and has limited credit history built up in the country. So, what do you need to know when you’ve found a property you love but don’t have enough money to pay for it? The most important step is to ensure you use a mortgage broker who has experience in working with new migrants as they know which lenders will consider your finance application. Since not all lenders will consider applicants who are not permanent residents, you don’t want to waste time applying to those financiers. Be prepared to pay a larger deposit as a temporary resident visa holder. You may be asked for 10% deposit rather than the 5% available to permanent residents. You will still need to meet normal lending criteria such as having employment and a good credit standing on any current loans or credit cards...
read moreManaging Your Debt Ratio: Advice For Home Buyers
Some people are able to purchase a new property without borrowing any money, but most consumers will normally turn to a mortgage lender to help them secure a new home. When approving a mortgage, lenders consider several factors, including your current debt ratio. Learn how lenders calculate your debt ratio, and find out how to manage this financial measure to secure the best possible loan. Debt ratio definition The debt ratio is a measure that accountants often apply to businesses, but the term is also relevant for consumers. A lender calculates your debt ratio by dividing your total monthly borrowing commitments (debt) by your monthly income and expressing the result as a percentage. For example, if your monthly income is $4,000 and your proposed mortgage payment is $2,000, your debt ratio is $2,000 / $4,000 or 50%. How banks use debt ratios As part of their lending criteria, banks will normally set a debt ratio, above which they will not normally agree to lend you money. Banks do not publish details of their lending criteria, and each company works to a different debt ratio threshold. That aside, a financial advisor can normally help you understand the sort of debt ratio each of the big banks works to. In Australia, all mortgage lenders must meet the requirements of the National Consumer Credit Protection Act (NCCP). These far-reaching regulations cover every aspect of lending, but, in particular, banks must take steps to make sure they don’t let people borrow too much money. Debt ratios help banks prove that they use robust credit assessment methods. Of course, the debt ratio is only one of the criteria that banks use, but it is an influential part of the process. The pitfalls of debt ratios Even a moderate amount of debt can materially impact the amount of money a bank will lend you for a mortgage. In some cases, banks work to a relatively modest debt ratio, which means that a consumer with an existing bank loan or credit card payments could find it difficult to get the mortgage he or she wants. One of the big challenges is that the bank must include the proposed monthly mortgage payment in the numerator for the debt ratio. As such, even a small amount of debt can seriously scupper somebody with a modest income. At a 38% debt ratio, somebody with a $3,000 monthly income and no debt could afford mortgage payments of $1,140 per month. However, at the same ratio, somebody with a $4,000 monthly income and $1,000 debt could only afford a mortgage payment of $520 per month, even though he or she has the same income after debt. Deciding if you should cut your debt ratio To get the mortgage you want, you may need to pay off some (or all) of your debt, so your debt ratio meets the bank’s requirements. In some cases, financial advisors warn against this practice because you can use up valuable cash reserves that you need for your down payment. As a rule of thumb, your current debt ratio will dictate whether you should pay off borrowing, or use cash for your down payment. If your current debt ratio is 6 percent or less, you shouldn’t worry about paying off debt, as it is unlikely to affect the...
read moreAbout Me
It can be hard to keep our household budget on track at certain times of year, especially when all of the school fees come in or at Christmas. I pride myself on the fact that as a stay-at-home mother aka household manager I know how to look after our money so that my family never feels under stress about our finances. I'm a clever shopper and a an expert in moving bill payments and negotiating with companies - but my family isn't that interested in hearing about my budget prowess so I started this blog to share by tips with the world at large. I hope you enjoy.