How Much House Can You Afford?
Once you decide to look for your dream home, there are two very important factors which you should consider, and some questions should be answered, as they can have a major impact on the type of home that you purchase, or in fact the future after you have purchased a home.
What Can You Afford to Borrow?
When looking for a home loan, there are specific criteria which must be met with some of the more common are as follows:
- A minimum deposit based on the value of the property (loan-to-value ratio known as LVR)
- Employment status and income
- Any previous credit card limits and/or personal debts
- Any savings history or repayments history you have had on car loans etc.
All of these are used in the calculations in deciding the answer that will denote how much house can you afford? Yet there are the other factors of how much you can afford to pay monthly as well. Take a look at your budget. Expenditure versus Income.
Mortgage and Lender Fees
Although there are many different home loans which are available, each one will have a different set of charges and fees set against it, these can include:
These are imposed as a cost of actually processing your loan.
The lender’s mortgage insurance is a fee which can be charged by your lender if a deposit equates to less than 20% of the purchase price of the property.
Special Feature Fees
Loans can have different features associated with them, and in many cases, these will attract more fees or whether or not the interest is variable, as an example: a redrawing account or an offset account can actually cost more than a standard type of home loan.
To get a home loan, you must actually reserve funds to cover conveyancing because your home and contents insurance and stamp duty (refer to concessions on this) will apply here.
All of the above are important factors, and professional advice should be taken as to what you should actually need to pay and what you shouldn’t. Always use a finance broker who has been accredited.
When deciding what you can afford, you should and need to draw up a budget.
You will have to make a list of all your incoming money and expenses. Minus the expenditure from your income, and this will give you a good idea of what funds you have available with that you can put towards your mortgage. When calculating all of these you should reserve a certain amount which can cover any expenses which are unexpected including changes in the interest rates.
Tips on what you can afford:
Income – Your mortgage payments should not be more than 35% of your total gross income.
Expenses – List your current expenses along with any future ones you may have including unexpected scenarios which may be encountered, examples being: having children, or employment status in the future.
Home Loan – This will be the overlying factor which dictates what you will need to repay. So, don’t overstretch yourself, and remember, the larger your deposit, the smaller your repayments will be.
When asking yourself, how much house can you afford? you can see there are many factors you need to consider. And you should always seek the advice of experts, who will help you find the ideal balance when looking for your new home.