Are you better off saving a big deposit or diving right into a mortgage?

[Junglemum]

We live overseas. We don't pay rent here and are managing to save reasonably quickly. We don't own a house in Aus, but want to invest in one. Given that there is no hurry i am really torn as to what is the best option. I hear that the market is slowing but the areas we are looking in have gone up about 80K in the past 12 months. I am no real estate guru, in fact i have been known to listen to what Kochie says, which shows just how little i know!

So do we buy now and then hopefully benefit from the increase in valuation of the property?
Or do we save a big deposit and look in another 12 months so we have to borrow less?

[Rainbow_Mumma]

i dont know what is best to do but we are saving as much as we can and going the bigger deposit option that way if anything were to happen we wouldnt be stuck with HUGE repayments but ones we could manage still

[MamaPan]

where abouts are you looking? the market is becoming a lot softer at the moment so prices will fall... (though always depends on the area). if you take some types of mortgage that you can pay direct into any amount you can kinda have it both ways - keep on putting lots away which is paying it off/reducing interest but you can draw on the money...(i can send you details of some of them - things like rocket repay). have you owned before? (first homeowners grant issues) and will you ever live in it?
Also - think thru what you will be able to afford when you do come home mortgage wise...

[toomanyshoes]

I would wait, we've been going back and forth with the same thing.

There are huge benefits to a larger deposit. You pay less interest on your property in the long run, there's more room to move if your circumstances where to change or rates went up, you might not have to pay lenders mortgage insurance and so on.

I'm also inclined to believe prices are going to fall or at least stagnate of the next couple of years. We live in a popular suburb and there's been houses on the market for over 12months.

[Cassius2]

I'd be inclined to save. but this is the perspective of a buyer occupier. MP has made some great points about the redraw possibilities, but then again if you have to pay mortgage insurance it's an extra cost over the life of the loan IYKWIM.

[Junglemum]

Thanks ladies.

MP- We are pretty flexible. But the two main focus areas are Williamston/Newport and the Frankston area. The first because i love the area and it is somewhere we could possibly live in the future. The second because the prices are good and the rental returns on investment are pretty good there. But i don't think we'd ever live there. We have never owned so yes we'd be eligible for the first home owners. I was surprised that prices had gone up in both areas, as they are so different....
When we come back, i'll be going back to work, so we'd have two wages again making mortgage repayments much easier. But yes we do need to think about that. Good point! I'd love any info you have MP. The reality is that we probably would never live in it unless something drastic changed. DH is a farm manager and we will probably live out of town, even if i am working in the city. Another option would be to look down Geelong way as i can always get work down there. The main problem with our marriage is our working lives. DH needs to be in the country and i need to be near a fairly major city. But we'll work it out. I'd be interested any any info you had.

TMS- I keep thinking that prices will slow or fall, and people say it will happen, but it just doesn't seem to?!

[Amity]

They;re not going to fall IMHO. They might stay steady, but they won't fall. Unless we have a major recession.

My place has gone up 25% in the 18months that I've had it. Scary.

Personally, I'd go WIlliamstown - you'll get much better capital growth and if it's a place you'd like to live, well that's a bonus. Also much easier to get to Geelong!

[mummydreamer]

I am no real estate guru, in fact i have been known to listen to what Kochie says, which shows just how little i know!

sorry i just had to laught at that, that's hilarious!!

to be honest, me and DH are no where near getting a mortgage, but i know if it were me, personally, i would be saving as much as i can. i have heard a lot of bad things about 100% loans, so i think the more you can save the better.....but i also understand you wanting to get in me market as quick as you can. anyway you could save for a year or 6 months or whatever, you said you weren't in a hurry.....that's what i would do.....

[DaintreeDream]

I am not eligable for the first home owners grant so I am little out of the loop however it is my understanding that you cannot use the first home buyers on an investment property, you have to live in the house for at least the first 6 months... just something to look at.

[Junglemum]

Oh yeah D, i remember that clause too now that you mention it......

Div- I think we are leaning towards there too. 25%?! That's awesome. Who says the market is slowing?!

Anyone got a crystal ball?

[fionas]

Here's the numbers:

Frankston: last quarter growth 1.4%, last 12 months 18.7%, last 5 years 50.8% (gross rental yield 4.2%)
Williamstown: last quarter growth -5.4%, last 12 months 8.2%, last 5 years 41.5% (gross rental yield 3.1%)
Newport: last quarter growth 3.9%, last 12 months 21.8%, last 5 years 68.4% (gross rental yield 3.3%)

FYI, 5% is considered a good rental yield.

Sooooooo, based on that, property prices are slowing EXCEPT in those areas that have traditionally been undervalued (ie. inner west springs to mind) so I would wait, save a deposit and see what next quarter brings.

Have you considered Woodend???????? 83% capital growth in the last five years, in the country and an hour to Bendigo or Melbourne CBD. Not that I'm biased or anything

[LionsandBears]

I'd say save as much as you can. If you can save the 20% deposit, you dont pay mortgage insurance. You're also seen as a better risk for the banks than the 95% loans. So many people who've taken out those kind of loans get into repayment trouble.

Have a look at things like the barefoot investor, money magazine etc. I can recommend a financial advisor if you'd like to talk to one.

Assuming prices will go up or down is speculating/ gambling. I'd look at finding investment property that will produce a positive income. If you're not going to live in it, I'd look at rental returns in rural centres and compare to Melbourne. I'm pretty sure you can get a better return outside of Melb.

[Olive]

ummmm excuse me darl but you are NOT allowed to buy over that side of town... Ginger and i will not allow it

[MamaPan]

JM - you do have to live in the property for a period if you get First HOme owners grant - it isnt the first 6 months but it is something like 6 months of the first year or something like that... so you wont get that... if you have over 20% deposit you wont have to do mortg insurance...

[FabFiona]

The theory of having as big a deposit is a good one. However for us, it was just a theory. With our first house, we borrowed everything but the kitchen sink to make it work. It was the only way we could break into the housing market as owners.

However for our second mortgage it was much easier. We were able to use the first property as security to borrow much, much less for the second place.

Now that we are about to get our third mortgage, we have a heap of cash in the bank (we sold both properties) which will be our large deposit.

Given your situation, I'd be looking at towns along the Bendigo v-line train route. Woodend, Castlemaine etc have heaps of commuters to the city and are beautiful places. Good rental returns but also lovely, lovely places to live.

[Miss.September]

We went 100% finance to get our house, the only way we could. Yes, our mortgage repayments are higher than normal, but that's for short term (and was a bit longer because we fixed them for five years). We're looking at refinancing early next year and are anticipating that our repayments will drop by around $100 per week. But by doing it when we did, we bought our house and land package for $249,000 in 2006. House and land packages (off the plan) are now selling around here for $350,000 and our house has been valued (without being seen) at around $380,000. So yeah, no regrets from us. I'd jump in as soon as you can to get the most return.

[Ginger]

i would wait. keep saving. the bigger your deposit, the better.....but...that only works if you are good savers. if you are going to waste the money then you are better off buying now and paying a mortgage off iykwim?

Frankston has great rental returns. i think you would be much happier out east though

[OceanPrincess]

I'm going to buck the trend here... We only had a 10% deposit and we bought a place that 18mths later was valued at something like 35% more than we paid. So we were able to utilize that equity and buy a bigger house, which we so desperately needed.

There's no way we could have saved that much in 18mths. We are so much better off doing what we did.