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How To Invest In Property As A Student With HECS Debt
If you’re a student with HECS debt, this one’s for you!
You can still invest in property. Yes, taking care of your HECS or HELP debts is very important. However, it doesn’t mean you have to put off homeownership.
I know what you are thinking, and you’re correct. You will have to provide certain information related to your credit and finances when investing in property. Plus, if you’re paying HECS right now, this will lower your net worth. Your HECS payment is usually between 4% and 8% of your salary. In effect, the amount of money that you can qualify for will also be affected by the reduction of your pay.
However, this does not mean you cannot get qualified for a loan. You just need to spend some time getting to understand how banks view HECS debts so you can do what it takes to qualify.
So how can you start investing in property with student debt?
Get a pay increase
Getting a pay increase takes quite a few years even for people who have been working for a long time. What you can do to help this process along is to upskill yourself. Find ways to learn more about the job that you are currently doing and make yourself more useful. Then, you can ask for a raise.
For a lot of people, though, getting an increase in their earnings might mean taking on more work or another job. If this is something that can fit into your schedule, it can be a great way to have more money coming in. Thus increasing the loan amount you can qualify for.
However, this is not always a quick fix if you weren’t meeting the $46,620 threshold for HECS payments before you started earning more money. In this case, your added income might just be enough for you to start paying off HECS.
Avoid unnecessary debt
Your HECS repayment is just like any other debt. So it is not wise to be acquiring additional or unnecessary debt while you are still paying for HECS. Unnecessary debts can be anything from credit card debt to splurging on luxury items and vacations you don’t need. In the case that you do have a lot of personal debts, start to clear those up by paying extra on them. Clearing up those debts will give you a better shot at qualifying for a loan.
By simply living within your means, you can improve your borrowing potential. Once you clear up personal debts, talk with the bank. Be transparent about your finances. This way, they can find an arrangement that works best for you.
“By having the ability to compare several lenders at the one time, we are able to recommend a product suitable for the applicant’s individual needs.” – Phil Farrugia, Finance Specialist
Get a guarantor for your mortgage
Use one of your parents as a guarantor for your mortgage. What this means is that your parent’s property will stand in as collateral for your loan. When you have a guarantor, banks are more open to approving your loan. This is because your guarantor acts as a safety net for the bank. So if you default on your loan or you cannot pay it, the guarantor agrees to step in and help. 60% of first-time homebuyers in March got help from their parents.
A guarantor helps you get approved for a larger loan. You can get as much as 100%, or more, of the property value. Bear in mind though, that even with a guarantor you will still be fully responsible for your loan repayments. Plus, if your parents pay, this doesn’t help your tax deductions.
“Any interest paid by the parent will not be deductible because it is not incurred from any form of business activity.” – Mark Chapman, H&R Block
Look at alternative properties
If you realise that you don’t qualify for the amount of money you need to get your dream home, start shopping around. Remember, your first investment doesn’t have to be your last. It makes no sense to dig yourself deeper into debt by borrowing more than you can afford to repay. Instead, buy cheaper property and make it make more money for you. Then you can have more capital to work with for your next investment or to help you clear up HECS faster.
Buying property is not something that you decide on overnight. There are lots of moving parts, especially surrounding finances, that need to be considered first. So if you’re a student with HECS debt, just know that the property market is not out of your reach. MLS Finance can help you take the extra steps to make it all happen. If you want to learn more about the market and stay informed, you can always sign up to our monthly newsletter via our website.
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