Wednesday, June 17, 2009

Initial thoughts, Who dares Wins, and Game on!

Kathryn and I (Jonathon) have been thinking very seriously about trying to buy our own house since at least 2008. There are many reasons for this desire/dream.

Here are some of the reasons we'd like to relegate renting a house to our past history instead of our present His story.

1.**The hassle of complying with rent inspections. Some landlords are better than others and our current one has been good so far, but can be a big hassle.
2.**The constant threat of having to deal with time-consuming and costly house moves on a yearly basis at least.
3.**The spiralling cost of rent. In one year we went from paying $230 a week to $355 a week.
Admittedly the place we are in now is a lot nicer, better place in a lovely new area, but the rise is indicative of the rental market in Perth at the moment, and it is ridiculously over-inflated, a bit like the price of groceries and petrol. When we first started renting in 2006 our rent was $185 a week. At present the average cost of renting in Perth is heading towards about $450 a week, which suggests the price of a mortgage should be cheaper, or at least similiar.
4.**the instability of moving often (as is likely to occur if we continue to rent) negatively impacting on our work and family life in a myriad of ways.
5.** If Jacob wants to do crayon drawings on his wall its not going to get us in trouble with the landlord, if we have trouble removing them. (hahaha or something like that...)
p.s. no it hasn't happened yet, but it could very soon I suspect...
p.s.s. and a host of similiar scenarios which any family deals with.

6.** the need for a settled home location if we are to have any more kids in years to come, in a house on land that is good enough to meet our needs and wants, e.g. can store all my junk and all Jacobs toys, is safe for our cats, and a place where we can grow vegetables like silver beet, carrots,corn, etc, etc, even have chooks if we want to without having to worry if its ok with the landlord.

7.** the need for Jacob to have a settled home by the time he goes to school.

There are heaps more good reasons but thats just a small sample of them.

Admittedly as the often sneering know-all "doomsayers" keep telling us, if we take on a mortgage and fail to make the payments, worst case scenario we could end up with nowhere to live and a massive debt, and in a very big financial mess. However thats also like saying if you drive a car you may end up dead and in a massive mangled mess. Which is very true, but its a risk most of us choose to take. Risks are part of life. As God, my parents, my ex-SAS racewalking coach, former Australian Cricket playerMike Whitney on his TV show by the same name, and others have often reminded us, sometimes; Who dares wins!

More and more I (Jonathon) am convinced that continuing to rent for many more years will be a bigger risk to our wellbeing than taking on the massive challenge of a mortgage that can work for us. So with that in mind, and with much prayer, and nervous anticipation (a bit like one often feels before a big race, an exam, or a job interview), for more than a year now I have been exploring ideas for getting our own house at a price and location that will work well for us. Kathryn and Jacob (just a little, although too young to comprehend much as far as I know) have shared in this experience in many ways. We have already looked over many house designs, visited blocks for sale, and talked endlessly about locations that might work for our family for years to come...

Of course the biggest hurdle though is getting someone to lend us enough money. It is step 1 to getting anywhere in this process. Something clearly spelt out to us when we had an interview at Homebuyers Centre in December 2008. Step 2 is to select a location and, step 3 is to select a house design. Oftentimes in this busy world, people do all 3 steps at once, or at least steps 2 and 3 together with a "house and land package". While I am open to the option of a house and land package, more and more I see the potential cost savings of doing all three steps independently. i.e. Get finance first, then choose location, then choose house design.
One of the reasons for this is that after reading Peter Lees book earlier this year, it seems the housing market is very one-dimensional in design, and could it be that this is more about profits for people in the building industry than about good houses, with excellent functions, and most of all at an ***affordable*** price.

Looking around extensively over the last few months it seems to me that a decent block of land is going to cost about $150,000-$300,000, and its becoming increasingly harder to find good land in a good location under $230,000. The best options I have found so far have been around the $170,000 mark, and I don't think we can pay any less if we want 500m square block in a good location.

Looking at advertised house designs the price seems to be around the $125,000-$150,000 mark for a 4x2 house. I have seen a number of designs for around the $130,000-$135,000 mark that would work for us. A few rare gems about the $115-$125,000 mark are also available. One company has advertised prices starting at $96,000 but I still have to phone them to check what they are offering for that price.

If I buy land at $175,000 and build a house for $125,000 that is a total cost of $300,000.

House and land packages are advertised at $230,000 to $350,000. In the areas that I'd consider living in, they are probably about $295,000+, as the cheaper ones are in crap locations, or are on cottage slumtype setups, or too small or something you cant live in for the next 10 years. Hoever if we can get the finance we may have to consider moving into one of the more outlying areas, as its starting to become more and more desparate to get out of the rental market...

So we need a loan for $300,000 to comfortably make the transition to paying a mortgage.
To get into a really good area, we need to borrow about $350,000.

As of 17th June 2009 the advice I got from a lender this week, is that the most we can get is $270,000.
I spoke to this same lending group a few months ago, and they advised me that I should be able to get $300,000. I mentioned this, and the telephonists response was "oh the price of living has gone up". Admittedly this is true, but it still seems a bit steep, a drop of $30,000 in borrowing capacity in about 3 months.

Assuming we get approved for $270,000 (no easy task, and a very emotionally draining, and time consuming task its starting to seem more and more), we are stuck with another down-sizing dilemma. Either we buy land $30,000 cheaper (i.e. $145,000 or less) or we build a cheaper house ($95,000 or less), or we wait another 6-12 months until our income is better, or give up on getting off the renting merry-go-round and carry on living week to week with throwing 70%+ of the money I am earning from my 60 hours a week in a day job and night job at the taxman, and the landlord, which seems like a terrible waste of the life God has blessed us with.

However maybe thats where the $21,000 + $10,000-$30,000 or so in extra goverment grants and/or housing group top-ups come in. To be honest i'm finding it alla bit confusing, but hopefully we will have enough to get over the line with a $100,000-$130,000 house on a $170,000 block, if we do I'll be ecstatic! I'm hoping that something like a peter lees design or something might help us to get the house price down to $90,000-$110,000, plus its double storey which could help with resale value down the track, and be more fun to live in. So I am hoping the Peter Lees designs might be the majic key to excellent housing under $100,000, preferably without us having to become owner/builders too much. But can't do anything until (a) we can borrow, and (b) I can find someone to build off Peter Lees plans at the price I want and do a good job of it. Am wary of going with a "bodgie builder, can we bodge it yes we can", for the sake of a cheaper price...
So hopefully after once we get approved I will understand things better, and we will have enough money to do this. Its going to be tight , but I am quietly confident God can, and will get us over the line...

After 3 years of working in casual (a major barrier to getting anyone to lend you money, so go fulltime or part-time if you can afford to) jobs with very few proper holidays, no sick leave or annual leave provisions, I (Jonathon) am getting tired and worn out. Kathryn is also tired and worn out from caring for Jacob for almost 2 years, with occasional help from Jacobs wonderful grandparents. We have been blessed with a good life in many ways, but a lot could improve.

The cars are getting older as are we, and the bills, and our untreated medical issues (teeth,shoulders,knees,ankles) seem to be increasing not decreasing. Thats life to some extent, i.e. everything runs down and falls apart, but doesnt mean we shouldn't try to slow the process down a bit.

One thought is that it seems that a lot of employers are keen on casual employees they can sack at a drop of a hat, instead of showing the commitment to their employees they expect in work performance. Is this a lose-lose situation for employee and employer, as it makes it so much harder to get a home loan in many ways, as the major banks are (perhaps understandably) not very interested in casual employees with no deposit money, even if they have been there longer than 6 months, and certainly not for $350,000...Some big positives in being casually employed is that you may be able to earn more, so increasing your borrowing capacity, and also it is easier to take time off sometimes, as not so much to lose, and plus easier to leave quicker, and you can reduce or increase your hours much maybe after all going casual is not so bad after all, if only the lenders would come to the party... Maybe Cash Converters should start offering home loans?
However a program from the Department of Housing called Keystart will consider casual employees if they have been there more than 6 months, and that looks to be the only option for us in 2009. Their big safeguard involves the shared equity scheme where the Government owns 20% of your house initially. The extension of the first homebuyers grant of $21,000 to September 2009 has kept that option open to us, as we could not enter the market until June (due to one of my jobs being less than 6 months old).
Unless there is a lender out there with less strict conditions. Have not found them yet.

Some people I have spoken with seem to think the $21,000 is a furphy and really only inflates the price of things by $21,000. Not sure whether to agree or disagree with them, but if it inceases how much we can borrow that is good, and we just have to find someone who hasn't inflated their price accordingly. Speaking to another person they suggest we should wait until prices drop further. But I am worried that the risk of (a) prices not dropping, or not dropping enough or (b) us losing our borrowing capacity (me losing my job, or my income dropping too much) is too big a one too ignore, especially with interest rates at their lowest in 50 years, and the prospect of unemployment increasing in 2010, making it (a) harder to pay rent/mortgage, and (b) get enough borrowing capacity.

Jumping through the hoops to get a borrower to lend you enough IMO has to be harder than actually paying mortgage payments from where I am coming from. Many would disagree with me on this, but their outlook/situation is probably very different. It was a bit like trying to get into university for me. I found it very hard, but once I got there it wasn't that hard to pass, although looking back I wonder if I should have studied harder, and most of all networked better. The way I look at it, there are 101 ways to deal with a mortgage payment, just like rent and bills, but there is only about 10 ways to get someone to lend to you.

The problem of paying rent and mortgage at the same time while building a house is a big one, although I think there are some ways to deal with it, for example Homebuyers Centre subsidising half your mortgage payment for the first 12 months, WAHC paying all of it at one stage?, or me doing some financial acrobatics with the loan to pay out our rent early, or some other way...not sure...but confident it can be dealt with...

There has to be a way out of this mess, and I am convinced it does not have to be a case of "out of the frying pan into the fire" by taking on a mortgage.

As Arnie says in a recent american car ad "You can do it!" hahaha...I'd like to think that attitude of unwavering confidence in the face of towering waves of uncertainty is what we need, Kathryn and I "can do it" if God helps us...

So it is with thoughts like these that Kathryn and I have started this blog, to help improve our sanity, and figure out good ways forward, which will hopefully help others in similiar struggles, and be a testimony to Gods provision.

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