Buying first property

[Jerk]

Hi, new here, I have read this forum with interest for the past year having contemplated purchasing a property. Now I'm looking at buying my first property soon and would love some advice or critique of my plan. While I am not an investor at this stage it is definitely a goal within 5 years.

Long story short: I am married with two kids, I have reasonably stable employment and am disciplined/good with money. I am an apprentice carpenter and my income will increase dramatically in the next two years. My weekly income is 1110 before tax all up. My wife doesn't work although will be in near future. And I have been told I can get an extra $100 per week by WINZ.

I have lived in Massey West Auckland for the past 6 months paying $370 per week for a 3 bedroom. Basically I am looking at buying a cheap reasonable house I can find (200-240k) in the area (which may not be easy), slowly doing modest renovations (insulation, deck, fence, paint, mouldings) and either keeping for a rental or selling in a few years.

Using ASB and Kiwibank's online calculators I've found that I could expect repayments to be approx $300 per week over a 30 year term on a 225k mortgage at current interest rates. I understand it's just a quick estimate and 30 year term is so I have minimum payment obligation just in case. This leaves $70 for insurances, rates and cost of home ownership, is that close to reasonable? I currently save $150 per week approx on top of budgeted expenses, and I expect my income to increase dramatically in the near future so I think I have wiggle room. At 300 a week it is less than my current rent and I can't foresee many situations where I would be unable to pay this much.

I intend to go with Kiwibank's offset mortgage because while I want to put in as much as I can into my mortgage I would like to be able to pull out money just in case, not that I plan to. I currently have a 15k deposit however if I go via the Welcome Home Loan's route (ie no deposit required because I am a low income earner) I can put that straight into a Kiwibank account, not pay interest on the same amount of money however still have it available for emergencies.

My biggest concerns are one interest rates rising and property prices falling eg council releasing more land or reducing the cost of new building. Also I think I will probably have trouble getting a mortgage due to my circumstances. Do you think it would be easier to get a small mortgage of say $300 being that I have been paying more in rent of say $370 per week? My parents would possibly be willing to act as guarantors or is there a better way? My credit is okay I think, I have used my credit card for 5 years and paid it off in full every month, have had a loan for my wife's wedding ring and made regular savings.

Next step is talking to someone at the bank but I thought I would ask others' opinion first. Any opinions, advice, criticism? Thanks!

Sorry if I come off as naive

[PC]

You have a great opportunity to get ahead.
Many of us started in similar or more modest circumstances.

The monthly mortgage payment will initially be a big deal.
After a while you'll wonder what the worry was all about.
If you have very strict spending discipline - a line of credit will repay debt much quicker than a tradition mortgage.
However most people waste their hard earned equity on big TVs and shiny cars.
Split the debt between LOC & Table mortgage?

Don't get your parents to go guarantors.
Talk to a mortgage broker in preference to a bank.

With your skills - find a cosmetically horrible house in the best part of Massey you can afford and do it up.
(The wife might put up with this once!)

[Contrail]

I presume you are planning to move into the house you buy?

Some problems might be:
a) finding a house for that price
b) what tenants would you attract for such a house if you do rent / what would the neighbors be like?
c) zoning for kids?

I probably wouldn't buy a house if I was in your position and living in Auckland. I'd focus on saving for now and when your income goes up / your wife starts work look at getting a better house / location.

I think any house for 200-240k would come with nightmares. You would basically have to go up to 300k and that would be too much for your income currently.

[Jerk]

You have a great opportunity to get ahead.
Many of us started in similar or more modest circumstances.

The monthly mortgage payment will initially be a big deal.
After a while you'll wonder what the worry was all about.
If you have very strict spending discipline - a line of credit will repay debt much quicker than a tradition mortgage.
However most people waste their hard earned equity on big TVs and shiny cars.
Split the debt between LOC & Table mortgage?

Don't get your parents to go guarantors.
Talk to a mortgage broker in preference to a bank.

With your skills - find a cosmetically horrible house in the best part of Massey you can afford and do it up.
(The wife might put up with this once!)

Thanks for your reply. I definitely think that it is hard not spend money when you're not forced to save it, however I can do it. Cars and TVs will come after I have a nice house paid off. I think a revolving credit type mortgage is very doable for me, what do you think is the advantage of splitting the debt between a LOC and table mortgage?

As for parents going guarantors, I would love to avoid it if I can. I really will have to talk to a broker to find out my options.

[PC]

LOCs are on floating rate.
Rate going up might strain the budget.
Though if you put every cent in that you can and live off a credit card (must be paid off in full each month)
the monthly interest bill can rapidly reduce.

The danger is one day you'll see quite a few $,000 in the account and the holiday/tv/car/fridge/whatever beckons.
Another way is to get the bank to reduce the LOC limit each month - stops temptation to waste your equity.

[Jerk]

I presume you are planning to move into the house you buy?

Some problems might be:
a) finding a house for that price
b) what tenants would you attract for such a house if you do rent / what would the neighbors be like?
c) zoning for kids?

I probably wouldn't buy a house if I was in your position and living in Auckland. I'd focus on saving for now and when your income goes up / your wife starts work look at getting a better house / location.

I think any house for 200-240k would come with nightmares. You would basically have to go up to 300k and that would be too much for your income currently.

I definitely agree with your first two points. Finding the one may take some time and I'm prepared to wait however I've lived in the area for awhile and I think it is a good area for my purpose. Do you think it's better to save even when it would be similar to payments between rent and a mortgage (including homeownership costs), despite paying landlord versus gaining equity in a mortgage? Also I could slowly add value to the property with minimal cost eg paint, mouldings, insulation, deck, fences, fix minor things etc all of which I can do without much cost giving me a nicer house to live in, slightly increased value and increased potential rent.

I do think that there are risks going with these types of properties however I think that some of the risk is mitigated by me being a builder and having ready access to ridiculously good builders.

Thanks for your insight.

[Jerk]

LOCs are on floating rate.
Rate going up might strain the budget.
Though if you put every cent in that you can and live off a credit card (must be paid off in full each month)
the monthly interest bill can rapidly reduce.

The danger is one day you'll see quite a few $,000 in the account and the holiday/tv/car/fridge/whatever beckons.
Another way is to get the bank to reduce the LOC limit each month - stops temptation to waste your equity.

Thanks for your help. I definitely think a type of revolving credit is ideal for me as I am that disciplined, and would love to put as much money as I can, while still retaining the abilty to access it. We already live off of credit cards which are paid off when they are due as a way of building a credit rating/for the small interest benefit. Having a portion on both LOC and table is not something I had considered and I had always thought that the floating rate was the biggest downside of that type of mortgage.

Thanks.

[Contrail]

Well you are right in that if you can buy any house for as much or less then you are paying rent, that is always a great deal.

Just try and get a good building inspection on any house you are interested in and look closely at the neighborhood / transport etc.

Got to be careful of any house in your price range

Sounds like you are in a good position to buy though.

[Damap]

What can you do to protect yourself against increased mortgage payments?

[Contrail]

Fix long term. You can lock in 4 years for under 6% now.

The offset mortgage is a good way to protect yourself also.

You keep your savings / see your savings grow, which is motivating. Yet your savings still reduce your mortgage as though you had put them all on it. If you have to meet increased mortgage payments you can then use your savings to top up extra payments.

[speights boy]

What can you do to protect yourself against increased mortgage payments?

If you are taking out a new loan, ask your bank to calculate what the repayments would be based on your actual rate plus 1 or 2%.
Pay this amount from day one.
So, as rates go up all you will notice is the principle amount not reducing as much.

[Damap]

Wow great idea thanks!!