
HOW MUCH CAN YOU AFFORD WHEN BUYING YOUR FIRST HOME?
The excitement quickly fades for many first home buyers when their reality progresses from what they’ve been dreaming of for their first home, to what they can actually afford.
It’s great to do some window shopping to work out what you want, but in the process of that, it’s essential to get a sense of what your budget might be so you can proceed with a realistic approach to how much you can afford when buying your first home.
How much do I need for a deposit?
It’s important to get a true idea of how much you need to be saving for your deposit. Your bank’s website will have an online mortgage calculator that will run you through some questions and instantly tell you how much you can afford to borrow and what your monthly loan repayments would be. From there you can calculate your deposit. It might also be helpful to do a quick search on a real estate website for properties in that price range. This will give you an idea of the current market and motivate you to take the next step – either start saving for your deposit or adjust your finances to improve your borrowing power. It may also be helpful to visit a mortgage broker who can give you up to date and personalised advice based on your circumstances.
What do lenders want from me?
Before you begin actively looking for a property you should get all the advice you can from people who know what they’re doing. Try to educate yourself as much as possible before approaching the banks so you can feel engaged with the process as you navigate your way through it. A lending institution will apply a ‘Qualifying Ratio’ which is the percentage of a home buyer’s gross income that can be prudently allocated for debt, based on personal income. As a general guide, lenders limit the total sum of monthly mortgage principal, interest, tax, and insurance payments to 28 per cent of the borrower’s gross monthly income. They may also limit the total of all long-term debt payments to 36 per cent of the borrower’s gross monthly income.
How can I save faster and smarter?
Knowing how much you will actually need – cold hard numbers on paper – should motivate you to work out strategic ways to make sure you can afford what you want to buy and put new behaviours and routines in place to secure that. Being in control of your cash flow will enable you to maximise the money you do save and put it into the right kind of account – a practice that can also make a huge difference. Investigate high interest savings accounts and consider small savings goals that you can then transfer to a term deposit when reached. For example, transfer savings as often as you can into a high interest savings account and when you reach $5000, transfer it into a term deposit. Then you get regular boosts to keep you motivated as well as a double shot at earning interest! When considering a term deposit, make sure you choose something with a good rate, low fees, and flexible choices for withdrawal at the end of the term. The other advantage of a term deposit is that it removes the temptation
to spend your home deposit on bright shiny things as you watch your savings balance grow.
How do I get a home loan?
Once you have the deposit you need, your next step will be to arrange a home loan. Choosing the right home loan from the many products available can be daunting. It’s important to understand the alternatives before making your choice. Talk to several brokers as well as a financial adviser, to get a good understanding of the most suitable mortgage product for you. It should be flexible enough that it can also help you make the transition from your existing home to your next in the future. This stage of the journey can be rocky for some with so many factors impacting on what kind or amount of finance they might get approved for - or if in fact they will get approved at all. A good mortgage broker will support you through this process and give you the advice you need to get the right finance for your situation, now or in the months ahead as you adjust.
Will I be able to keep up with my mortgage payments?
Bringing a mortgage into your life is a huge commitment but normalising it and adjusting your spending and habits around it will allow you to seamlessly integrate it in your life and your future. This is a good time to make a new budget if you’ve been ticking over with the same spending patterns for years. You’ll have new expenses now as a homeowner that you didn’t have before, and your priorities will change in line with having your own home to take care of and add value to. Go through your old budget diligently and see where you can cut back, then look at ways to increase your income as well. Look at where reductions might be possible in your regular bills. Calculating and comparing costs of things can be surprising. Your new life as a homeowner will require you to make different choices than before and to stand by them. Your goals now are bigger than ever before and the good people in your life will support that. You’ll be surprised how many people will have your back if you are open and honest with them about what you want. Everybody’s trying to make their finances work after all, we just all pretend we’re fine for the sake of social graces. What you do with your time is your choice and saying ‘no, sorry I can’t – I have plans’ can be really empowering.
Can I go shopping now?!
Shopping for a property should be an exciting adventure – especially when you have saved long and hard for the deposit and you’ve had your finance approved. With a clear picture of what you want and how much you can afford, it can be a fun and rewarding experience. Aside from basics such as the suburb and number of bedrooms, there are other important things to consider, depending on your circumstances. For example, is the property within walking distance of a primary school? How far to the train station? Is there off-street parking? Does it have a sunny aspect? Is it on a truck route? How close are the nearest shopping facilities? There are now many ways of accessing information on the property market. Of these, the internet is by far the most popular means of finding real estate for sale.
If you need advice about where to start on your property journey, you can ask your local First National Real Estate member about the range of options available to you.
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