Think outside the square to find ways of buying your first home. Susan Templeton suggests some options, and says it’s important to get good legal advice if you go through with any.
Become a commuter, or go rural
It’s often cheaper to buy just out of cities. Can you commute? Include in your budget the expense of a ferry ticket or petrol to the hinterlands to your new digs.
If you can’t afford to build a house in the city, a rural section could be the best thing.
Buy a dump
Sometimes diamonds in the rough don’t excite the bank. What then? Renovate, of course. But be aware that renovation can be costly if you’re not a professional, and there are many hidden costs.
If you find a dump in an ideal location, approach the sellers to do the work to your specifications, or remove the dump and start again.
Approach your BFF
Maybe it’s time to build a team. You could potentially buy a home with several of your best mates by pooling your resources.
If you and your friends are keen, it’s essential you hire a qualified real-estate contract lawyer to draw up a property-share agreement for your very specific needs.
Lay out who’ll do what and how much everyone contributes upfront. Be sure to have that all-important ‘exit clause’ and spell out everything about who will actually live in the home, right down to the chore roster. That is, if you want to stay friends.
How about a seller second mortgage?
In my early career, it wasn’t uncommon to have a seller hold a second mortgage for the value of the deposit, to be paid at a later date, to help you get in the door.
Here’s how it works: You both sign a contract of sale outlining the specifics of when they exit the arrangement and how you pay them back.
You need a qualified real-estate contract lawyer to work out the contract, and banks may play hardball around ‘seconds’, but if it’s an option, why not?
Rent-to-own arrangements are essentially a form of owner-financing.
The seller has to agree to a fixed price, or cost-of-living increase, for a certain timeframe until you can afford to finance the home.
Here’s how it works. Let’s say you’ve agreed a sale price of NZ$300,000, good for three years. You make a deposit of NZ$10,000, to be held in trust for three years, and agree that NZ$1,000 of your NZ$2,000 monthly rent goes toward your deposit.
The key, again, is a solid legal contract that protects your financial contributions until you can afford to get finance, or pay the seller.
Warning: Some sellers count on your failing (which happens), so it could mean they keep your funds. And you may find some resistance from banks or real estate agents.
Have you considered approaching your employer for an early bonus or company loan?
After all, it might be your employer’s interest to see you get established and they may be willing to help with a deposit.
Again, the paper trail must be clear about the nature of the funds – is it a loan, or are you actually receiving a form of income?
Starting again is actually better for first-homers because a new construction qualifies for a 10 per cent deposit from a lender, where an older house requires 20 per cent for an owner-occupier.
Investors should be all over this because the 10 per cent-down applies to everyone. The key to a good build is a good builder, great location and… a perfect contract.
A good construction specialist lender will be happy to work with you if you know what you’re doing. Developer houses are the easiest to finance because they’re predictable and built to a sellable standard.
Building your own house can be tricky: there are many costs upfront that are challenging.
Hey, Mum and Dad
Some parents build a small second unit on their property and sell a share to their children to allow them to build equity in the property.
Later the children sell their share or buy up to the big house when the parents are ready to downsize.
Note that family members or friends who buy a home together can also split their loans and their shares, equally or unequally.
First published 14 September, 2018
Story by Susan Templeton
Susan Templeton is a personal mortgage adviser, owner of Niche Mortgages, and a registered financial adviser. The opinions expressed by her in this article should not be construed as financial advice.
JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions. This story reflects the views of the contributor only. Content comes from sources that JUNO considers accurate, but we do not guarantee that the content is accurate.