We all need a place to call home; there’s no denying it. Whether you rent or own, we all deserve safety, shelter, and a place to rest and make our imprint. Somewhere to recharge your batteries after a hectic week, a place to cook, dine and drink and share laughter with your friends and family.
For many Australians, buying a home is a great dream, and with some hard work and savings it’s possible for many. But for first-time buyers, the challenge of buying a home can seem massive. You won’t be able to afford every home that you see on property listing pages. Determining your buying budget is the first step in the process so you can narrow down your search. But how exactly do you do this?
Lucky for you, this helpful article will share how you can crunch the numbers and figure out what you can afford. Continue reading to learn more, and we’ll also share some general budgeting tips that may assist you in the process.
Use a mortgage repayment calculator
The first step is to use a mortgage repayment calculator, for a couple of reasons. The first is to determine your borrowing power. It will ask you for the size of your deposit, your total combined income, including employment, investments and more, and your average monthly expenses. The calculator will then give you a rough idea of your total borrowing power – or the amount you can safely borrow and be able to afford repayments on.
The second step is to use a repayment calculator, which you will use to input the loan amount, the potential interest rate and the frequency of repayments, which will then calculate what your weekly, fortnightly or monthly repayments will be. This is useful as you’ll know how much of a sting you’ll be up for and can factor this into your budget moving forward.
Figure out your expenses
Part of the process is determining your monthly average expenses, as any lender is going to need this, and it will factor into your budgeting process. If you have never done this before, it’s a good practice to develop as it will help you stay on top of the household’s finances, which is never more critical than when you own a home and have to manage mortgage repayments and other essential costs associated with owning a home.
The easiest way to do this is to look over your bank statements to figure out the recurring expenses, such as utility bills, phone bills, subscriptions, insurance, groceries and other regular costs of living. The trickier part is figuring out the once-off or infrequent costs such as buying clothes, medicine, and car expenses such as fuel and maintenance. However, if you go over bank statements for around a year, you can average out the rough monthly cost of all these variables to get a vague idea of the ballpark figure.
The size of your deposit
One major factor that will determine your budget for a first home is the size of your deposit. The larger the deposit, the more money you’ll be able to borrow – depending on your income. Most banks are going to require a 20% deposit at a minimum, as this avoids lenders’ mortgage insurance, which can be a significant expense that is bundled into your home loan.
There are some exceptions to this, with a handful of schemes and government incentives meaning that you can purchase a home with as little as a 5% deposit, but it’s worth investigating what the various options are and which is best for your personal situation.
Struggling to get a deposit?
If you’re struggling to come up with a deposit for your first home, you may be spending more than you should be. This can be easy to do and tempting as so many things grab your attention and cost money. With some clever approaches and savvy saving techniques, you can reduce your expenses and boost that bank balance for some genuine savings that banks love to see.
For instance, how much do you spend on entertainment? This may include streaming television, attending live music events, live sports and cultural events. All of this can add up over the year, and turn into a decent sum of money. You can pare back your streaming to one service and avoid going out to live events whilst you save for a home. There will always be other gigs and sports matches down the line, and if you have your priorities in order, securing a home will be more important than a one-off gig.
Another excellent way you can save money is by not eating out. Buying lunch at work and getting takeaway during the evening can quickly add up to hundreds a month, if not more. By packing a lunch and making dinner at home, you’ll save a lot more than you may be expecting.
A Budget-Conscious Conclusion
This helpful article has shared how you can determine your budget as a first home buyer and what you need to know about this important process of buying your first home. It’s a scary, exciting time, but if you know how to budget, and the best ways you can secure a home loan that works for you, it won’t be long before you’re the proud owner of keys to your very own home.
