How to set a budget when buying a home
Buying a home is an exciting adventure, but it's also a big financial decision. Setting a budget is the first step to ensure that you find a home that fits your needs without breaking the bank. Here's a straightforward guide to help you set a budget when buying a home.
Use a broker to calculate your borrowing capacity
Mortgage brokers have lending software that can determine your borrowing capacity with a wide range of lenders. It’s free and doesn’t impact your credit score to do this. They simply enter your income, expenses and other financial details to give you a realistic idea of what you can afford. This can be a much smarter way to explore your options than limiting yourself to one banks borrowing amount, loan products and interest rates.
Determine the repayments you can manage
Regardless of what you can borrow, it's important to know how much you can comfortably afford to repay each month. Take a close look at your budget and figure out how much you can realistically allocate towards your mortgage payments. Remember to consider other expenses like groceries, bills, and leisure activities. You don't want to stretch yourself too thin!
Find out what government support is available to you
If you’re a first home buyer, you may be eligible for the First Home Owners Grant. This is a state government initiative, and the amount varies from state to state. Mortgage Brokers can help you apply for the grant and connect you with lenders who will consider it towards your deposit. The Home Guarantee Scheme is also available to first home buyers and buyers who haven’t owned property in the last 10 years. This is a federal government scheme that allows you to buy a home with a 5% deposit while avoiding lender mortgage insurance.
Your deposit impacts what you can borrow
Although your borrowing capacity may be enough for your desired home, your deposit will still ultimately determine what you can borrow. Most banks require at least a 5-10% deposit, provided you pay for lenders mortgage insurance (LMI). You can avoid LMI if you have a 20% deposit or qualify for the government Home Guarantee Scheme. If you have a family guarantor, you generally won’t need a deposit, and you can also avoid LMI.
Setting a budget for buying a home doesn't have to be complicated. With the help of a mortgage broker, a clear understanding of your financial situation, and a bit of research into government grants, you'll be well on your way to finding the perfect home within your means. Happy house hunting!