What Home Can You Afford?

Buying a home is exciting, but it's important to know how much you can afford before you start. Two essential things will help you figure this out:

1. Your monthly budget (affordability)
2. How much money you've saved for a deposit

Let's make it easy to understand.

1. Affordability: The Key to Managing Monthly Payments

Affordability is about making sure you can pay your mortgage every month without stressing about money. Lenders (the people who give you the loan) look at three main things:

• Your income: How much money you earn from your job or other sources.
• Your expenses: How much you spend on things like bills, debts, and everyday costs.
• Interest rates: The cost of borrowing money, which affects your monthly payments.

Lenders use this information to figure out how much they think you can borrow. It's also wise to think about how changes in interest rates or your personal situation could affect your payments in the future.

2. Deposit Size: The Crucial Factor In Your Home Purchase

Your deposit is the money you pay upfront when buying a home. It affects how much you need to borrow and the total cost of the loan. Here's why it matters:

• Loan-to-Value Ratio (LVR): This is the amount you borrow compared to the home's price. A bigger deposit means a smaller LVR, which can help you get better loan terms and avoid extra costs.
  Lenders Mortgage Insurance (LMI): If your deposit is less than 20% of the home's price, you may need to pay for LMI. This extra cost protects the lender, not you.

For example:
If you want to buy a $500,000 home, a 20% deposit is $100,000. This means you'll borrow $400,000, and your LVR will be 80%. If your deposit is smaller, like 10%, you'll borrow more and may have to pay higher costs, such as LMI.

Finding the Right Balance

To figure out what home you can afford, follow these steps:

1. Check your budget: Review your income and expenses to determine what you can comfortably pay each month.
2. Save for your deposit: Aim to save at least 20% of the home's price to avoid extra costs and get better loan terms.
3. Get expert advice: It's always wise to seek guidance from a financial advisor or mortgage broker to find the best options for your unique situation.

By understanding how much you can afford and how your deposit affects your loan, you'll feel confident and ready to start your home-buying journey.

Tip: Everyone's situation is different, so it's always a good idea to get advice from a professional.