How much money do I need to buy a house?
Determining how much money you need to buy a house is an open-ended question as the answer greatly depends on your end goal.
WHAT ARE YOUR GOALS?
When looking at property investing, everyone has a different goal. Whether it be buying one house or multiple properties, buying to live in or to invest – every scenario and set of circumstances requires a differing amount of funds and a different financial set-up.
LOW DEPOSITS AND LMI
A property can be purchased with as little as a 5% deposit, however, lower deposit loans must be covered by Lenders Mortgage Insurance (LMI). Banks will generally lend up to 80% of the total amount required and LMI is required to cover the difference.
THINK LONG TERM
Different amounts will result in different outcomes. Lower deposits may mean more properties may be purchased with the same amount of money. It pays to be aware, however, that there are a limited number of good mortgage insurers in the industry and long-term, multiple low deposit loans set-up with LMI may be seen as high risk, with lenders refusing further financing.
DETERMINE DEPOSITS BY YOUR GOALS
When considering how much funding is required to purchase a property, always have your goals in mind. A 20% deposit on loans makes it much easier to build a portfolio. For a single property purchase, however, a higher risk loan with LMI would be fine.
GET ADVICE ABOUT STRATEGY
It’s best to speak to a finance specialist to determine an investment strategy, as that will impact financial requirements. These specialists can come from a variety of backgrounds. Be mindful, there may be a difference in advice from an independent resource verse financial sales people. Speak to accountants, buyer’s agents, investment specialists or others who have achieved what you want to achieve.
Ask banks questions about your options. Determine what the outcomes will be of different scenarios. Do some research and work out what is best for your situation.
FACTOR IN CLOSING COSTS
When it comes to finances, don’t forget to factor in closing costs for the property purchase. These may include legal fees, Stamp Duty, council rate excesses and insurances. These are all additional costs that you must bare in mind to work out the kind of property you want to buy and how much you need to make it happen. From there, you can research options to determine how much you realistically need to save to buy a property to suit your goals.
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