Budgeting and How much can I borrow? - Latest News

Budgeting is a very important step in the process of a home. Buying you first home can be exciting and satisfying, however, it is soul destroying and sometimes very costly if you have to sell because you can't afford the loan repayments. As a home buyer you should never borrow above your means. So it is important to have a look at what you are currently earning and spending and work out how much you can afford in loan repayments. Look over your bank statements for the last six months. What are your spending habits on a monthly basis, what do you save each month and how much is left over? Repayments can often be significantly higher than rent so it can come as a shock to see how much you need to pay on a monthly basis to service your loan.

Also remember, when you own a home there are other expenses than just your loan repayments to consider, for example renters do not have to pay rates, repairs, renovations or house insurance. So you should take these into account when working out your budget.

Try to take into account your long-term financial plans. For example, there may be interest rate rises or plans to have a family, even job security should be considered when buying a home.

Your Deposit: In most cases you will need a deposit to purchase a property. There are some products in the lending market where you only need a 5% deposit plus your costs, but it can be very difficult to gain approval for these types of loans. In general, you will need to show 3% to 5% genuine savings to secure a loan. In most cases, the lender will require proof in the form of six months bank statements showing the saving history or the deposit can come from sale of a previous property. In some instances, a lender will take rent paid to form part of the deposit.

Important: not only will you need to have your deposit, there are significant costs including government charges, lenders application fees, conveyancing fees and lender's mortgage insurance to be taken into account when buying a property. Your finance broker or lender can help calculate how much you can borrow, but only you know what lifestyle you want as a home owner.