March 3, 2014
So you’ve decided it’s time to get out of the rental market and into a place of your own. Whether you have been saving for a while or are just starting out, there are three important things to consider.
How much can you borrow? Buying a home is a truly emotional process. We are told by all the experts that we need to buy with a calculator, not our heart, but that really is easier said than done. So before you start flicking through the Property Press and going on open home excursions, work out what you can borrow – realistically.
First things first, determine what you think you can borrow based on your current cash flow. Have a look at your earnings and outgoings and come to a weekly or monthly figure that you think you’d be able to commit to on a long term basis – comfortably.
Next, it’s time to find out how much lenders will lend you. All lenders have slightly different criteria in terms of how much they will lend, the deposit they require, serviceability ratios etc. A number of them have calculators online which will give you a general idea, but it’s a good idea to make an appointment with a few and test the waters. You might also want to look at using a broker to do the leg work for you.
Saving the deposit When you know how much you can afford to borrow (both in terms of your level of comfort and what lenders are prepared to put on the table) you can work out the deposit you need. At the very minimum you will need five percent deposit plus the purchase costs such as stamp duty, legal fees etc.
Also, if you want to avoid the cost of mortgagee’s insurance then you will need to have enough funds for a deposit of 20 per cent plus the costs. If you are eligible for any First Home Owner Grant monies or stamp duty savings then this will reduce what you need to have.
For example: if you have worked out you can afford to service a loan of $200,000 then you need around $22,000 in deposit monies. If you are eligible for grant monies of $10,000 then this reduces what you need to around $12,000.
Planning when to buy So now you know how much you can borrow and the deposit you’ll need to get on the property ladder. Based on your current expenses and income, you’ll be able to work out how long it will take to reach the figure you need, and whether you need / want to make changes to your spending to get there quicker.
Often the time it takes to save a deposit can be rather daunting, and to be honest, a little off-putting. But just keep visualizing you in your own home to stay focused. It might be a year or two before you cross the threshold of your first home, but you’ll remember the day you took the first steps to realising your goal with real satisfaction when you do.