Saving for and owning a first home can be very rewarding but also very expensive. It's important to cover all your bases, so that should anything happen; your family can still have a future in the home that you intended for them.
Owning a first home is a milestone in every family's life. It's a foray into the property market, providing freedom from the restrictions of renting, and allowing your family to enjoy the benefits of living in their own space. Most importantly, it's a place to call 'home'. However, buying and keeping your first home is not easy, and it's important to consider the impacts of a change in your family circumstances, such as the sickness or death of you or your partner.
Saving for your first home
During 2001-04, there were 394,000 recent first homebuyers in Australia and 94% of these held a housing mortgagei. If you're looking to buy your first home, many financial institutions require you to have at least 20% of the property value as savings or acceptable equity (without Lenders' Mortgage Insurance)ii, iii, iv, v. In January 2013 the average price of a home in one of the eight Australian capital cities was $480,000vi, making that a savings goal of $96,000.
This figure doesn't include the additional costs of property inspections, legal fees, government charges, insurance and utility connections. All of these expenses are significant, and even with two incomes, it's not going to be easy.
Owning your first home
Data from the Australian Bureau of Statistics states that an estimated 69% of Australian homes are occupied by their owners with more than half under mortgagevii. If you already own your first home, you will know that a mortgage is only one of the ongoing expenses. Rates, insurance, household maintenance and bills are just a few of the costs that your budget must account for. To add to this, the interest rates your home loan is subject to fluctuate, so the repayments are likely to both increase and decrease over the life of the loan. Another thing to consider is the increase in living costs in Australia: budgeting to maintain your family's quality of life can be a challenge.
A change in circumstance
If you can no longer rely on two incomes or a large single income, what could it mean for your family?
Statistics show that lone parents were more likely to experience financial problems such as not being able to pay their electricity bills on time and requiring financial help from family, friends or welfare organisationsviii. Single parents with children under 15 years old were more likely to be renting their accommodation than couples with children under 15, who were most often buying their home with a mortgageviii.
Ensuring your family has the best future possible is a priority at any time, but can prove difficult with a change in family circumstances, such as critical illness, death or being permanently unable to work due to sickness or injury. In such cases, life insurance can help reduce the financial pressure on your family.
i Australian Bureau of Statistics, 2007, 4102.0 - Australian Social Trends: Wealth in Homes of Owner-Occupier Households, http://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/835719233482EF4ACA25732C00208159?opendocument
ii Commonwealth Bank of Australia, 2013, Lenders' Mortgage Insurance, http://www.commbank.com.au/personal/home-loans/our-borrowing-options/lenders-mortgage-insurance.html
iii Australia and New Zealand Banking Group (ANZ), 2013, Cost of buying your home, http://anz.com/personal/home-loans/getting-started/costs-buying-home/
iv Westpac Banking Corporation, 2013, Buying my first home, http://www.westpac.com.au/personal-banking/home-loans/solutions/buying-my-first-home/how-much-i-need-upfront/
v National Australia Bank, 2013, First home buyers FAQ, http://www.nab.com.au/wps/wcm/connect/nab/nab/home/Personal_Finance/22/2/3/3/
vi RP Data-Rismark, 2013, RP Data-Rismark January Hedonic Home Value IndexResults, http://www.rpdata.com/images/stories/content/pressreleases/2013_02_01_rpdata_rismark_indices.pdf
vii Australian Bureau of Statistics, 2012, 1301.0 - Year Book Australia: Home Owners and Renters, http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/1301.0~2012~Main%20Features~Home%20Owners%20and%20Renters~129
viii Australian Bureau of Statistics, 2007, 4102.0 - Australian Social Trends; One Parent Families, http://www.abs.gov.au/ausstats/abs@.nsf/0/F4B15709EC89CB1ECA25732C002079B2?opendocument