TIP It is important to know what you can spend as soon as possible to guide the types of properties you visit on weekends. Looking for a new home without a budget can be exciting, fun and make you feel like a mighty millionaire, however it also starts to create an image of what you cannot afford, which is a false economy. A property worth $800,000 will offer more in terms of location, space and overall quality of the property. But, if you only have a budget of $500,000, then you are heading for disappointment once you start looking within a much higher price range.
How much you can spend is determined by several key factors that differ by individual.
Buying by yourself – if you are buying by yourself the amount you can borrow will be determined and restricted by your personal finances only.
Buying with somebody else – if you are buying with a partner, brother, grandmother, friend or associate, the amount you can afford to borrow will be determined by both of your personal finances.
Your Income – The more you earn, the more you can afford to repay; therefore, your income is paramount to how much you can borrow. Your income includes all earnings including income derived from investment properties, share dividends and/or a personal business.
Your Expenses – Your expenses have a bearing on how much money you have available to make repayments. The higher your expenses the less money you have available the less you are likely to borrow. Managing your expenses is significant when it comes to borrowing money.
Your Deposit – The size of your deposit is significant in how much you can borrow. Assuming, your income is very high, and you manage it with moderate expenditure, then the amount available for your deposit will be a major contributing factor on how much a lender will lend you.
Your deposit can be expressed as a percentage of the total price of the property. Most lenders require a minimum deposit of 10% of the purchase price of the property, in order to provide the remaining 90% of the purchase price of the property.
TIP When your deposit is less than 20% of the property purchase price, the lender will most likely require you to pay Lenders Mortgage Insurance (LMI). By having a deposit larger than 20% you can wave the need to pay (LMI).
First Home Owners’ Grant – The First Home Owners’ Grant is a one-off grant that is payable to first home buyers that satisfy all the eligibility criteria. The criteria for qualifying are different by state, so it’s important that you seek the necessary information and establish if you are eligible. You can obtain information from the Government site http://www.firsthome.gov.au/ A Mortgage Broker is often the best person to speak to with respect to how much you can spend on a new home. There is no harm in doing this early after deciding to buy a property as it allows you time to visit open homes in your price range to satisfy yourselves that this properties in this price range appeal to you.