Are you in the process of purchasing your very first home and feeling overwhelmed with rising housing prices, financial constraints, changing market conditions and poor credit? You’re not alone. As a first-time homebuyer, taking on such a huge responsibility can be intimidating. But even if it seems like an overwhelming task to buy a house, you can successfully make it happen by understanding your options and preparing for what lies ahead.
The statistics
A recent report reveals that the cost of housing is still proving to be difficult for first-time homebuyers, with only 57% believing now is a suitable time to purchase property compared to 67% from just one year ago. As pathways into traditional homeownership become more and more challenging, many FHBs are considering alternate strategies.
The Helia’s First Home Buyer Report 2022 unveils that the majority of aspiring homeowners (68%) are challenged by housing affordability and accumulating a deposit. In response to this, nearly half are cutting back on lifestyle expenses (48%), while 45% anticipate prices decreasing so they can eventually purchase property.
Helia, formerly known as Genworth, is an Australian provider of Lender’s Mortgage Insurance (LMI). Shockingly, their report reveals a drastic decrease in those who wish to purchase with the mandatory 20 percent deposit required to avoid paying for LMI; this figure has plummeted from 41% in 2019 down to only 24%. Furthermore, usage of LMI has doubled over the same period – skyrocketing from 36% up to 71%.
Even the Bank of Mum and Dad is feeling considerable pressure. According to a report published by Helia, 62% of first home buyers (FHBs) who purchased in the last two years have gained monetary assistance from their parents or family members – an increase compared to 57% in the previous year. However, this figure has been reduced for prospective FHBs planning on purchasing within 24 months – only 43%. This could be telling us that those with financially capable parental units are already being given support while those without are struggling behind.
So, if traditional home ownership is off the table for now, what’s a first home buyer to do? Alternative options are available, but not all FHBs are familiar with them.
What to do buying your first home with poor credit
For first home buyers in Australia with poor credit, options are more limited but not entirely unavailable. Here are some potential avenues to consider:
- Improve credit score: Before pursuing home ownership, focus on improving your credit score by paying bills on time, reducing debt, and correcting any errors on your credit report.
- Larger deposit: Saving a larger deposit (20% or more) can increase your chances of loan approval, even with a poor credit history.
- Non-bank lenders: Some non-traditional lenders specialize in loans for those with poor credit, though interest rates may be higher.
- Guarantor loans: Having a family member with good credit act as a guarantor might increase your chances of approval.
- Rent-to-own schemes: While not traditional home ownership, these arrangements allow you to rent a property with the option to buy in the future, potentially giving you time to improve your credit.
- Financial counseling: Seek advice from a financial counselor to develop a plan for improving your financial situation and creditworthiness.
First home buyers can benefit immensely from several support options and homeownership strategies such as:
- First Home Owner Grants (FHOGs)
- First Home Guarantee Scheme (Formerly the First Home Loan Deposit Scheme)
- Waived or discounted stamp duty (which could be replaced with land tax in some situations)
- Buying off the plan
- Building a new home from scratch
It’s important to note that options for those with poor credit are often more expensive and carry higher risks. Improving your credit score before pursuing home ownership is generally the best long-term strategy.
If you’re not sure of the best strategy to buy your first home, consider contacting a mortgage broker for help assessing which options may best suit your unique financial situation.
