Buying a house is a big commitment. And for small income earners or young adults just making their way in the world, the thought of finding the right property, raising a home deposit, securing the right loan and going through home buying legal procedures can be very daunting indeed.
So how do first time home buyers with low income start the process of buying their dream homes? True, there are many first time home buyer loans they can apply for but there are a few other things they should consider as well.
Here are some suggestions for low income earners or those with small home deposits to buy residential property.
Start Raising Money for a Home Deposit
The earlier money is put aside for a home deposit, the more funds will be available by the time house hunting begins. Open a high interest savings account for this purpose. Fixed term deposits, online savings accounts and cash management trusts are secure and pay good interest rates. Those planning to buy a house five years or more down the road can also invest their savings in managed funds and shares. Although riskier, investments in shares and managed funds will certainly yield higher returns in a longer time frame.
Prospective young first time home buyers can also stay longer with their parents to quickly raise a house deposit. However, it’s important not to take advantage of the parents’ generosity. Help by paying some kind of rent and contribute in daily household chores.
Buy a Smaller or Cheaper House
Obviously, if money is an issue, the best solution is to aim for a smaller or cheaper house. In fact, many first time home buyers purchase more affordable units or apartments and later use the equity they’ve built up to borrow money to buy bigger and nicer homes in better suburbs.
Make a Joint Purchase With Others
A single person with a low income can also opt to make a joint purchase – buy a property with friends or relatives. It can, however, get complicated because of the multiple parties involved. One party may want to sell the property or become unable to make his portion of the monthly loan repayment. That’s why those planning to make a joint purchase should make sure their legal documents and contract are drawn up carefully.
Get a Low- or No-Deposit Loan
First time home buyers who haven’t accumulated ample home deposits don’t need to despair. They can still try to get low- or no-deposit loans, provided that they are in permanent employment and have a decent income. A no-deposit loan is essentially a 100% loan on the property while a low-deposit loan typically requires a minimum deposit of 3% to 5% of the purchase price.