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What you can afford isn't just about what a bank says you can afford, it's also about your lifestyle.
I encourage customers to be as accurate as they can be when they're calculating their expenses, so that when they have the loan they won't be eating two minute noodles every night.
When calculating affordability, one of the methods Suncorp Bank uses is what we call a sensitised interest rate, which is an average interest rate over 30 years. This aims to help later down the track if the interest rate changes, so you still have a financial buffer.
You should think about future income, what happens if you decide to have kids and if you are relying on two incomes, what happens if you need to drop from two incomes to one.
Also, the things that make your life meaningful – Christmas time, birthdays, holidays. Customers need to think about what they might be giving up to have a home loan.
It's tempting to ignore unexpected expenses. But having money saved up as a buffer for things that may need fixing when you do have a new home – like air conditioning, heating, and plumbing is a good idea.
Ultimately it's up to you to work out what you can afford, but we can help guide your thinking.
Book an appointment with a Suncorp Bank mobile banker online.
If you’re saving for a house, it can be hard to know when exactly to stop. When will you actually have enough money to go looking for a house and actually put down a deposit? After all, a home loan is a huge life commitment. You’re generally not expected to pay it off in less than 25-30 years. You don’t want to rush into it.
Given all that, obvious logic suggests you should save as much money as possible for as long as possible before you go looking for a house. But, we’re only alive for so long. We can’t sit around stockpiling money forever. So, again. When do you stop? How much money do you need to put a deposit on a house? Is there even a definitive answer to that question?
Working out if you’re ready for a home loan
Much as every person in life is different, so too is every person’s home, and home loan situation. But, there are a handful of considerations and general rules that should help anyone to figure out if they’re financially ready to hit up their bank or lending institution for a loan. So, roughly speaking, how much do you really need for a house deposit?
Well, in some scenarios it is actually broadly possible to access a mortgage with a value of up to 95% (including fees) of the overall property value from some financial institutions. So, to put that into concrete numbers, you could theoretically borrow $380,000 against a property worth $400,000.
While it is broadly possible to access those types of loans, your ability to borrow such amounts for such low deposits will be dependent on a lot of factors. For example, you’d probably need to have an exceptionally solid employment history, a similarly exceptional credit history and proof of a consistent savings plan. You’d also need to purchase Lenders Mortgage Insurance (LMI) with less than 20% deposit.
Lenders Mortgage Insurance (LMI) explained
So what is LMI? Basically, it protects lenders in the event of borrowers defaulting on their loans. Think of a $400,000 house. If a bank lends you $360,000, and you repay $40,000 but then fall prey to financial woes and can’t make your repayments, the bank is then $320,000 out of pocket. Worst case scenario, a bank may need to seize your house – but they may only be able to sell it for $310,000. They’d still be ten grand out of pocket. And, that’s not even accounting for the interest they would have expected on such a loan.
Hence, mortgage insurance. You can pay it upfront or include it as part of the loan. So, borrowing $367,000 instead of $360,000 (or, paying $7,000 upfront). At this point, it’s important to remember that borrowing a higher amount not only means repaying that higher amount – but also repaying a higher amount of interest. For example, paying interest on $367,000 at 5%, is obviously more than paying interest on $360,000 at 5%.
(Now, even if that sounds like a relatively small difference – remember that variable interest rates are subject to change. You may be able to repay your loan at 5% interest. Can you do it at 7%? Or 9% Or, worst case scenario, 19%? They’re all possibilities.)
So, how much do you need for a house deposit?
In some scenarios, you can feasibly get away with borrowing 95% of the property value. But, as demonstrated above, that won’t come without considerable complications, expenses and risks. Perhaps a better question to ask is – ‘how much should you have for a house deposit?’
Which actually has a more straightforward answer. Generally, banks and financial institutions will recommend you have a deposit of at least 20% of your prospective property’s purchase price. So, if we go back to our $400,000 home, you’d want to provide $80,000. Now, that will take a lot longer to save – but you’ll pay less interest, you won’t have to pay insurance costs, and you won’t need to have a guarantor.
As always, it’s up to you what will work best for your situation. Really, when it comes to a long-term financial commitment like a home loan, it’s as much about your ongoing financial comfort as it is about having any specific set of money – even if you have that token $80,000, can you guarantee you’ll be able to make your repayments into the future? Even if your interest rate changes? That’s what will really determine if you’re ready to buy a house.
(If you’re unsure if you can tackle your repayments, you may want to look at a Home Loan Repayment Calculator or simply speak to a couple of lenders. They’ll help you figure out how much a home loan may cost you and whether or not you’re in a position to tackle it.)
Ultimately, every person is different, so too is every person’s home, and home loan requirements. Think about what works for you.
Get expert assistance
Are you ready to talk about home loans? Contact a Suncorp Bank home loan expert about your loan options or for assistance with your application.
Published 13 May 2022
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The information is intended to be of a general nature only and any advice has been prepared without taking into account your particular objectives, financial situations or needs, so you should consider whether it is appropriate for you before acting on it. We do not accept any legal responsibility for any loss incurred as a result of reliance upon it – please make your own enquiries.
Home Loans are provided by Suncorp-Metway Ltd ABN 66 010 831 722 AFSL No. 229882 Australian Credit Licence 229882 (“Suncorp Bank”) to approved applicants only. Please read the relevant Product Information Document, Lending Fees and Charges and Home Package Plus Terms and Conditions before making a decision regarding any Suncorp Bank products. Fees, charges, terms and conditions apply and are available on request or on our Product Information Documents and Forms page.
