Understanding your borrowing power and how much you can afford when buying a home.
Owning property in Australia is a dream for many young professionals and families, and understanding your borrowing capacity -or “How much can I borrow?” is a critical element for home buyers.
How much you can comfortably afford to borrow typically comes down to two factors:
- How much you have saved and the size of your deposit.
- How much you can afford in mortgage repayments.
Financial factors
Before you start looking for a property – either to live in or as an investment – take a look at your finances from all angles and ask yourself a few important questions:
- How much income are we generating?
- Do I have enough money to pay for a deposit?
- How much will my monthly repayments be and can I afford to make them?
- Is my repayment/credit history positive?
- Have I assessed my household budget?
- Am I planning to start a family soon?
- Are there other considerations that might impact my financial situation?
- As a general “rule of thumb”, your mortgage repayments (along with other short and long-term expenses) shouldn’t cost more than 35 per cent of your gross income.
Borrowing power – tools and guidance
Doing your due diligence from the very start will pay big dividends when it comes to home ownership in Australia. Putting your expenses under the microscope may be intimidating at first, but it will ensure your home loan works as hard for you as you did for it. You can make a start through;
- Home loan calculators can help buyers get a sense of your borrowing capacity. These online calculators factor in your loan type, loan length and interest rates to calculate a general repayment figure. Your broker will be able to walk you through these calculations to ensure you’re aiming for the right figures.
- Seek professional help! – Many people choose the help of a mortgage broker when seeking a home loan. Using a mortgage broker can give home buyers clarity around their borrowing capacity and what you can realistically afford versus what you think you can afford, greater choice, peace of mind and clarity, especially for those just starting out in the property market.
If you need support and advice in buying a property, Equilibria Finance can guide you through this process.
Anthony Landahl | Equilibria Finance
Note: This is for general information purposes only and does not constitute advice. With all of these options there are a number of considerations outside the scope of what is covered in this article. Please ensure your personal circumstances are taken into consideration.
