1. How much can you borrow?
Before you start looking at real estate, it’s important to know how much you can borrow to set your first home budget. To establish your borrowing power, lenders will consider many factors including your salary, deposit amount, savings habits, living expenses, debt, credit history and if you have any dependents. You can use online calculators to get an approximate idea of how much you can borrow.
Remember that online calculators are only indicative and based on assumptions, so while they’re a good guide to your approximate borrowing capacity, the actual amount you can borrow may differ when you see a lender who has a more detailed understanding of your position.
When you get serious about looking for your first home, it’s helpful to contact your lender to have a conversation so they get a comprehensive view of your specific circumstances, and in turn you will get a clearer understanding of how much you can actually borrow.
2. How much should you borrow?
As a first home buyer it’s important for you to consider how much you could borrow versus how much you should borrow. Just because you can borrow up to a particular amount doesn’t necessarily mean you should, as you may want to keep in touch with some indulgences, or pursue life’s non-essentials like holidays, extra study or more expensive hobbies. Remember as well that life continues after you buy a home, so there could be weddings, renovation and maintenance costs or changes in work arrangements, so always ensure you allow some additional room in your budget.
3. Be aware of the true cost of buying a home
Most first home buyers aren’t aware of the many extra costs associated with buying a home. When determining how much you should borrow for the first time it’s wise to factor in additional costs in case they pop up down the track. During the buying process, the basic costs you can expect are:
- Pest and building inspection: many lenders require a report from a pest and building professional to finalise your loan (approx. $500)1
- Conveyancing fees: your solicitor or conveyancer will finalise the purchase and transfer of land titles (approx. $2,000)1
- Insurance: to be cautious it is generally a good idea to insure the property* during the settlement period to safeguard against things that could happen during this time. You could consider getting an online quote so you know what to factor into your budget
- Stamp duty: this differs by state. For the most up to date information on stamp duty for first home buyers visit http://www.firsthome.gov.au
- Lenders mortgage insurance (LMI): if your deposit is less than 20% you may need to pay LMI. Some lenders will let you add this to your loan total, however it is important to note that the maximum loan amount for some lenders is 95%, including LMI charges.
4. Factor in the unexpected costs in your home
Even if you hope to buy a brand new house or build a new home, buildings will always require unexpected maintenance, prompting a call to a local tradie, and even your home contents like appliances can stop working at the worst possible time for your budget. Factor in space to cover these to help ensure you’re not under unnecessary strain if and when they do pop up. It’ll make your home ownership experience much less stressful once you start making repayments!
5. Factor in first home buyer grants and stamp duty exclusions
If you are an eligible first home buyer and intend on living in your first home for at least 12 months you could be eligible for government grants or discounts. The first home buyer grants and discounts vary by state and can also change based on if you are buying an existing home or building a new one. You can view the most current first home buyer grants and eligibility criteria by visiting http://www.firsthome.gov.au.