Is home ownership possible?
Oran Hall, Contributor
21 years old and I want to start the process of getting my own home.
I have other goals that I want to accomplish but I want this to be my first. I am planning on taking this process through the National Housing Trust (NHT). Yes. I have been a contributor for about three years now, and I am planning on getting my boyfriend as a co-applicant. He has been a contributor for more than 10 years.
I am earning $31,000 per month and my responsibilities are:
Lunch and taxi: $8,500
Phone payment: $2,000
My boyfriend more or less goes from pay cheque to pay cheque.
There is not much for savings because most of the time what is left over is used up miscellaneously. So I want to know if it is possible to go through with this, and what other advice you have to give me.
Home ownership is a good goal to have and I can understand why - considering how prices are moving - you are keen to realise that goal in the short term. There is much that you have to do to succeed ,though.
Making use of the NHT as a source of mortgage funding is sensible. And I see you are a proud contributor. The idea of having a co-applicant is also sensible, provided that the person is willing to live up to his responsibility and that a way can be found to ensure your long-term security. On the other hand, such a move could be fraught with problems.
Have you determined what price house you desire? Do you have the required funds to make the deposit and to cover the closing costs? This can be a tidy sum! How much will the mortgage payment be? Will you be able to pay that sum every month?
Pay yourself first
You have a big problem, though. I see no provision for savings in your budget. Savings are not left-overs, far from it. Pay yourself first. Your co-applicant, living from pay cheque to pay cheque, is not likely to be a great source of help.
Your budget makes no provision for accommodation. It will be a big part of the budget when you own your own home.
The first thing you need to do is save. You are still quite young and have time to increase your earning power. Start your savings programme by cutting some expenses. Eliminate "miscellaneous" spending. It devours 16 per cent of your money. Food and travel account for 47 per cent of your expenses, and cable, phone, and Internet for 20 per cent. Take a close look at your use of water.
It is possible but it will not be easy. The hardest part is securing the deposit and closing costs. Your problem is not singular, as the case below illustrates.
- My wife and I, both 28, are house hunting. We can afford a mortgage for a $13 million property, that is, NHT ($7 million) at 5.5 per cent and my wife's staff rate of 5.5 per cent for the balance. I know if we get a $13 million property we would have to come up with 85 per cent and pay the vendor the 15 per cent deposit plus closing costs; but it is this deposit that keeps me and many other prospective buyers from closing a deal.
Should we seek to borrow this from another financial institution or from the same building society if possible? Are you aware of any company that lends towards the deposit? We have no debts and about $150,000 in savings and combined monthly salary of $280,000. How can we make home ownership a reality? We want to take advantage of the market.
I think a company that has a specific plan that lends towards deposit and closing costs would be a great benefit and the real estate - market would be revitalised.
It seems your monthly payment would be more than you are calculating. At least one of you, probably both, would be borrowing from the NHT at eight per cent. If you were to succeed in borrowing all you would like to, how would you fund the rest of your living expenses?
I am not aware of any company that lends for the purpose you are asking.
The truth is that it is unlikely that a person who has not been able to save the deposit and closing costs, because of inadequate income or indiscipline, would be able to service the mortgage and repay the funds borrowed for the other expenses at the same time.
You may want to start with something more affordable. In the meantime, step up your savings.
Oran A. Hall is principal author of 'The Handbook of Personal Financial Planning' email@example.com.