Finance for First Home Buyers

What You Can Actually Afford? Don’t Guess!

Before you begin house hunting the most important thing to do is to work out exactly how much you can afford to spend on your new home. Many first home buyers do this by simply calculating if they can afford monthly mortgage repayments. However mortgage repayments, whilst significant, are not the only thing that needs to be considered when determining how much you can afford to spend on your new home. Buying a home can result in many unforeseen costs. It is important to know all the expenses involved upfront to avoid any unwanted surprises along the way.

How Much Can You Borrow?

The amount you can borrow will depend on a number of factors:

1) Your Income

This is the most important factor which will determine the exact amount you can borrow. Your income needs to be able to cover repayments on your loan as well as your basic living costs. If you are applying for the loan jointly with another person your repayment capacity may be greater, which can mean greater borrowing power.

2) Employment Status

One of the main things that lenders will look at is if you are employed. The lender will look at where you are employed and how long you have been employed by that corporation.

3) Financial Commitments

Lenders will look at all other financial commitments you still having owing. This can include car repayments, personal loans, credit card debts and HECS debts.

4) Your Assets & Investments

Your savings and other investments will also impact your borrowing capacity.

5) Your Deposit

First home buyers should save around 10 – 20% of the property value as a deposit. The greater the deposit, the less you will have to borrow and the lower your repayments will be. However, if you borrow in excess of 80% you will be required to pay lenders mortgage insurance (LMI).

6) Your Credit Record

The lender will check to see that you have no red flags against your name for defaulting on previous loans, credit cards or other lines of credit by looking at your credit record. It is worthwhile to check your credit record before you apply for a home loan so you are able to amend information in your credit history if you believe it to be inaccurate.

To access a copy of your credit history, go to www.mycreditfile.com.au.

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