The first thing you need to do is set a target for how much it is going to cost you to purchase your home. I know we all want to live in the ‘perfect’ home but sometimes you need to be realistic and set a mark for what you can comfortably afford. Do you base it on what you can afford with only one income or can you comfortably rely on two (not just for now but for the life of the loan).
For this example, let’s set a purchase price of $400,000 (if you want to see this example for other purchase prices then send me an email at email@example.com).
Now let’s show the typical costs related to this purchase:
- Loan application fee $600 (not all loans have application fees but it’s a starting point)
- Lender legal fees $300 (once again these differ from lender to lender)
- Borrower legal fees $1,500 (this is normally at the high end of the range but can be modified to suit your chosen conveyancer/solicitor)
- Stamp Duty – this is based on the purchase price
- In the state of Victoria (as at Nov 2013) stamp duty on this purchase price is $19,070.
- This is reduced to $16,370 if you are purchasing the property to live in, rather than an investment property.
- The stamp duty is then further reduced to $9,822 if you are a first home buyer.
- Transfer fee –also based on the purchase price, $1,116
- Registration of Mortgage (State Revenue Office), $135
So, the total costs we have allowed for here are $13,473 so to buy for $400,000 you need to spend $413,473.
Assuming that the maximum loan you can get is at a loan to value ratio (LVR) of 95%, the maximum loan you could get for this purchase is $380,000.Therefore, you need to contribute a minimum of $33,473 to buy this house.
The next step is to look in your bank account and see if you have this money ready to go. For this example, we will assume you have $10,000 in the bank – so there is a shortfall of approx. $24,000.
Now you need to decide when you want to buy this house. If you are 2 years away from buying, you need to save $1,000/month but if you want to buy in 12 months’ time then you need to save $2,000/month. I recommend you set up a separate savings account for this money, so it is separate from you ‘everyday’ month and then start saving away.
For more information, contact Peter Ruddock on (03) 9877 6471 or firstname.lastname@example.org