Getting married and purchasing a house is a main objective for many young couples, but with couples spending more money on weddings, many are left with nothing to put towards their first home. This raises the question, can couples afford both a marriage and a mortgage at the same time?
According to the Bride to Be magazine’s ‘Cost of Love’ study, the average cost for a wedding is $54,294 (May 2013). This is the equivalent of a 10% deposit on a $500,000 home. As you can probably imagine, most young couples are not in a financial position to be able to afford both a marriage and a mortgage at the same time. This means that most young people have to choose one or the other. Although there are both pros and cons for both, it is important that you consider all the factors to find a solution that suits you.
Factors to consider when choosing to save for a wedding or home first:
Buying a property first
Although purchasing a property can help put you in a better financial position, it is a major long term financial commitment, so you need to ensure you can afford the ongoing costs. If you are purchasing jointly with your future spouse then you need to be sure that the relationship is solid as this is a major commitment you are entering into jointly.
Short & long term goals: Deciding whether to purchase your first home or not will depend on your plans for the next few years. If you and your partner are not ready to settle down and are considering travelling or changing careers, it may not be the best time to purchase a home. You will need to consider whether your life will be stable enough to manage the ongoing mortgage repayments.
Investment or owner-occupied: This may affect how much you will spend on a property. Many first home buyers are unable to find a suitable property to live in at a price they want. So instead of waiting for the perfect property to come along, consider purchasing an investment property as you can use the equity saved to help cover the deposit when you find your dream home. Also, you may be able to save more money for your wedding if you find an investment property that has a smaller price tag.
Deposit amount: Many lenders are now offering home loans with a deposit of 5% or less of the property purchase price. Although this may sound appealing, it can end up costing you more. Firstly, the smaller your deposit amount is, the larger your loan repayments will be. This is particularly important to note if you want to save for a wedding after obtaining a home loan. Secondly, having a small deposit may also mean that you will be given a less competitive interest rate, which will also equal higher ongoing repayments. Finally, for most lenders, if you save less than 20% of the purchase price for the deposit, you will have to pay Lenders Mortgage Insurance, which is a one-off fee that could cost you thousands.
All of these factors can affect how much you will spend on purchasing your first home which could then affect how quickly you can save for a wedding afterwards.
Getting married first
True cost of a wedding: Although a wedding is one of the most important events in a couple’s lifetime, is it worth putting you in a bad financial position? Many couples who are under financial pressure take out a credit card or personal loan to cover the wedding costs, but are then stuck paying off a debt with a high interest rate for months. Not only will this debt eat away at your finances, but it can also affect your borrowing power if you decide to take out a home loan after you get married. When assessing your home loan application, a lender will take all personal loans, car loans, credit cards, interest free facilities and other ongoing commitments into account when calculating your borrowing power. The more debt you have, the less you will be able to borrow.
It is important for couples to be realistic about the cost of the wedding and work out if they are able to afford the wedding budget without borrowing money.
Tips to save for both a marriage and mortgage
Strict budget: It doesn’t matter if you are planning to spend $20,000 or $50,000 on a wedding or a mortgage deposit, you will need to implement a strict budget to meet your goals. This may involve cutting out unnecessary extras such as gym memberships, pay TV and the daily takeaway coffee. Cutting out these debts can also help improve your borrowing power, which may mean that you could be able to borrow more or get a more competitive interest rate.
Obtain a home loan with money saving features: If you are determined to purchase a property before getting married, consider taking out a home loan with unlimited extra repayments, free redraw and an offset account. All of these features will allow you to repay as much as you like into your home loan, which will not only help reduce the interest amount owing, but you can also redraw this extra money when you need it to pay for wedding expenses.
Research: In order to save for both a wedding and a property, you will need to shop around for the best deals. When choosing a home loan, it is important to compare different lenders to ensure you are not only getting a competitive interest rate, but the home loan product has features that will help you save money in the loan term. There are also a lot of ways to cut costs for your wedding without compromising on quality. Some examples include having your parents pitch in for certain costs and also keeping an eye out for special deals, especially during the quieter season (usually around winter).
Overall, there is no right or wrong answer when it comes to this decision, but you will need to look at your own situation and your money saving habits to help determine how you can afford to avoid ending up in extreme financial debt. It could be possible to save for both at the same time, but it will require a lot of research, saving and willpower.