With the house builders doing it tough you see all sorts of offers.
On the radio the other day I heard an advert saying “$500 down and you could be on the way to a new house and land package.”
If you feel tempted here are a few thoughts:
- Deals like this mean you are borrowing more than 90% of the price of the house. This is a high risk mortgage so the provider will be charging extra interest and insurances which mean the overall cost will be higher.
- When you buy a new house there are a lot of extras you need to budget for curtains, blind, furniture, gardens, the list goes on (See What Will It Cost?). Its not going to be easy in your new house if you have a huge mortgage, and your credit card maxed out on furniture and fittings.
- Have you got a reserve of money in case you or your partner looses a job, gets pregnant, or becomes ill.
- If property prices go down and things go wrong you may find that you owe more than the house is worth, This is known as Negative Equity!
I would be very reluctant to commit to a new house unless:
- I could put down a minimum deposit of 10%.
- Had the equivalent of at least 3 months wages saved for emergencies.
- Spoken to a bank or other lender to see what they would be prepared to lend us, and knew it would cost less than 1/3 our combined incomes.
Do you think I am being too careful?
Budget has more posts about finding a house the right size for you.