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How to determine how much you can afford for a home

Becoming a homeowner is an exciting process. You get to go to open homes, inspect potential properties and eventually fall in love with a home that you could see yourself living in.


But first things first, it’s good to know how to determine how much you can afford, to find the perfect home in your price range.

How do you find out your price range?

You need to be realistic and still manage your money alongside paying off a mortgage. To do this, there are a few things to take into consideration including your personal finances, borrowing options and the total costs of buying.

We’ve put together some questions you’ll need to ask yourself alongside some handy info to get you started on your home buying journey.

First, let’s talk income

Is your income regular or irregular?

It’s important to consider your income situation and whether you could sustain mortgage repayments if you don’t have regular income. Whether you’re self-employed, working part time or full time or in any other situation, you need to dive into your income situation.

How much can you put aside with your income?

With your current income, how much would you feel comfortable with paying monthly towards your mortgage? A quick look at our calculators can show you how much you could borrow, as well as how much your home loan repayments would be.

Once you know this rough figure, consider if you’d be able to live with your income minus that amount.

 A look into debt

Are you paying off a car, credit card debts, student loans or any other forms of debt? Lenders will want to know about your existing debt to understand your situation and help them determine whether to approve your home loan application as well as how much you could borrow.

Every situation is different, and if you find yourself asking ‘Should I pay off my debts first, or save for a home deposit?’ the answer would be different depending on who’s asking. Our advice would be to chat to someone who could help. After all, Mortgage Choice experts are there for that very reason, to help you reach your home ownership goals. They can help determine where you stand financially and what your next steps are.

What do you spend monthly?

We all have monthly expenses, so it’s a good idea to have a clear understanding on how much of your income is goes towards them. We understand that this is sometimes difficult to track, especially if no month seems the same. The size of your household and spending habits all affect this figure.

However, there are certain things that are unlikely to change which could help give you an estimate on your monthly expenditure.

Basic monthly expenses

To get you started, there are a few essentials that would pretty much make anyone’s list along with some examples:

  • Food: groceries, take out
  • Clothing: uniforms, laundry expenses
  • Transport: petrol, car insurance, tolls, train & bus fares
  • Healthcare: private healthcare
  • Entertainment: movies, going out money
  • Personal care: gym memberships
  • Miscellaneous
Utilities

You also need to consider how much you’re spending in monthly utilities, such as:

  • Electricity
  • Gas
  • Water
  • Netflix/Foxtel
  • Internet
  • Mobile
It’s also not a bad idea to have a look into areas you could potentially be saving a buck or two. If you’d like some insight into how much you could save, check out our save more money tool. You can even have a look at our savings target calculator to help visualise how much you should be saving weekly to achieve your goal.

You don’t need to start this journey on your own either! Chatting to your local Mortgage Choice broker can help you feel confident and informed on your journey. 

Posted in: Home loans

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