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Smashed Avo Is Not The Problem

18th May 2017

The poor old avocado is back on the hitlist of “millionaire” property owners, baby boomers and politicians. The apparent lack of ability of would-be homebuyers to give up their avocado, daily coffee or other little luxuries is somehow to blame for their inability to save money and get into property.

The fact is, for income earners, you can manage to grow a deposit without giving up too much luxury.

First of all let’s blow up a few myths!

Myth 1 – You need a 20% deposit to buy a house

This is utter garbage. A 20% deposit will help avoid mortgage insurance, but you can now get into home ownership with no deposit (and family members that are willing to assist with a guarantee).

Myth 2 – You need genuine savings of 5% to buy a house

Sure this was true several years ago, but changes to mortgage insurance policies have taken place over the last few years and many lenders are now happy to accept First Home Owners Grants, gifts, inheritances, tax returns and asset sales as a source of deposit. Just don’t borrow the money – that’s a no-no!

Don’t get me wrong – it’s still helpful to have a deposit. If you don’t have family members willing and able to help with a guarantee a deposit is a must and this will often include the need for extra costs such as stamp duty.

Myth 3 – Having a credit card will get me a good credit rating

This may be the greatest myth of all time. Sure banks look for a good credit rating – credit applications and enquiries will actually reduce your credit rating... and credit card companies don’t report you for being good with your card, only for being bad with it. Not owning a credit card will have no impact on your credit rating. But owning a credit card could make it worse.

So what’s the number 1 impediment to getting a deposit for a home?

The number 1 impediment to getting your deposit is not smashed avocado – its debt. Multiple credit cards, store cards, car loans and personal loans  - if you have these, your deposit will be harder and harder to come by and your home loan is much less affordable.

If you are just starting out avoid the debt trap. You don’t need a credit card – if you think you need one “for emergencies” why not put a bit of money aside every week (yep, savings) instead of an “emergency” credit card. The vast majority of “emergency” credit cards end up being regularly used and abused credit cards  - and not due to any sudden need for funds. You don’t need to borrow for furniture, computers, electronics…. Once again, save for it. The same goes for cars – chances are you’ll need a car. If you don’t have the cash for it, get the cheapest car you can get away with – the flash cars can come later once you’ve built up the wealth to enjoy luxuries a little more.

If it’s too late and you already have debt, talk to us about consolidating it and bringing it into one easy repayment.

With a bit of budgeting, and avoiding or reducing your personal debts, you can still enjoy a smashed avo AND get your deposit together for a home

Get on track for your home purchase today by calling 1800 734 346 and speaking to your local home loan expert

 

Rod Cross is principal and small business lending specialist at Regional Finance Solutions Coffs Harbour. He has twenty years lending experience, holds a degree in Business Management and Finance and is a member of CAFBA and the FBAA. For more information or a consultation regarding your lending needs, Rod can be reached on 0437 124 936