Understanding what you can afford to buy
Whether you’re buying your first home or looking for an investment property, it’s smart to factor in all the costs of home ownership and how much you can borrow without limiting your lifestyle.
Start by understanding where you are now
Calculating affordability starts with answering two simple questions:
- How much can I save for a deposit?
- How much of a mortgage payment can I comfortably make every month?
How you answer those questions depends a lot on your current financial situation. What’s your household income? How much are you spending every month on basics like utilities and groceries? What about any monthly debts? And do you already have savings available you can put towards a deposit, stamp duty and other buying costs?
Home loans are long-term commitments, with terms of up to 30 years. So think ahead to where you’ll be in the future. Your income and expenses can change, especially if you’re raising a family. You also want to be sure your home loan stays affordable if interest rates rise.
Ready to get started?
LVR and LMI: what they are (in plain English) and why they’re important
When you’re applying for a home loan, your Loan to Value Ratio represents the amount of your loan compared to the value of the property.
Here’s an example:
Say you want to buy a house for $500,000 and you’ve saved $50,000 as a deposit. Your LVR would be 90 percent since your loan will be 90 percent of the value of the property.
LVR is one of the ways lenders assess home loan applications. By saving more for your deposit, you can lower your LVR and increase the strength of your application.
If you’re borrowing more than 80 percent of the value of a property from a bank, it’s likely you’ll need Lenders Mortgage Insurance. LMI protects your lender in case you default on your loan.
LMI is a once-only cost. It’s not something you need to pay every year or month. Many borrowers add the LMI cost to their mortgage and repay it over time. To learn more, read our LMI factsheet (pdf).
Tools to help you budget and save
Government fees and other costs
Stamp duty, mortgage registration and transfer fees may apply to your home purchase. It’s important to be aware of these costs – and include them in your overall budget. To get a sense of these costs in your state or territory, use our Government Fees Calculator.
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