How much can I borrow & how much can I spend?
Pretty much first question – how much will the banks lend me – to which I add, how much do you want your repayments to be?
The answer varies between lenders. Online calculators, are not terribly accurate so I would advise you seek proper preapproval before you go looking.
In order to maximize your potential remember all credit facilities reduce your borrowing capacity. Cut credit card limits and pay out and close personal loans, car loans, and interest free facilities.
How much deposit do I need?
With the exception of where you have parents offering a guarantee – lets come back to this – you typically need a minimum of around 9% of the value of the property to buy your own home – 5% to go towards your deposit itself and the rest to cover your costs.
If you’re buying land and building you usually only pay stamp duty on the land & not the whole home value. There’s also the potential for the first home owners grant to help you.
Most lenders also have rules around looking for a minimum of 5% of the property value showing your history and ability to save.
The more deposit the better, and with a 20% deposit + enough to cover your costs you can also avoid some other fees (lenders mortgage insurance). This can also be avoided in our guarantee scenario where your parents offer their home as additional security for a limited portion of your loan – then you don’t generally need any savings at all to get started.
What is lenders mortgage insurance (LMI)?
LMI is an insurance policy that is taken out by the bank whenever you borrow more than 80% of the value of the home to protect THEM should you stop making your repayments. The cost of the LMI is added to your loan. Consider LMI as a tool and consider protecting your income so you never have to hear more about it.
What other costs are involved in buying a home?
LMI (if you need it)
Loan application fees
Pest and building inspections or strata reports
Connections to power, phone, internet etc
Overwhelmed? Don't be. Remember that we do this every day and we are happy to answer all of your questions, it's simpler than it seems.
Western weekender article https://issuu.com/weekenderpenrith/docs/propertydec2/26