Day 4: Setting Your Budget

Day 4: Setting Your Budget

How Much Can You Really Afford?

So, you’ve decided to buy your first home—congratulations! 🎉 But before you start scrolling through property listings, it’s time to get real about your budget. Buying a home isn’t just about the purchase price; there are upfront costs, ongoing expenses, and even hidden fees to consider.

In this post, we’ll break down everything you need to know about setting a realistic budget, including how much deposit you’ll need, how to calculate your borrowing power, and what additional costs to expect. Let’s dive in!

How Much Deposit Do You Need?

For most first-home buyers, the deposit is one of the biggest hurdles. But here’s the good news: you don’t always need a massive 20% deposit to get started.

Minimum Deposit: For first-home buyers, you can often get a home loan with as little as 5% of the property price or **20,000∗∗(whicheverishigher).Forexample,ifyou’rebuyinga500,000 property, a 5% deposit would be $25,000.

No Lenders Mortgage Insurance (LMI): If you’re a first-home buyer, you may not need to pay LMI, even if your deposit is less than 20%. Some government schemes, like the First Home Loan Deposit Scheme (FHLDS), allow eligible first-home buyers to purchase a property with as little as a 5% deposit without paying LMI. This can save you thousands of dollars!

Pro Tip: If this is your second or third home, you’ll generally need a 20% deposit to avoid LMI. Unfortunately, you won’t be eligible for the First Home Grant either, so saving for a larger deposit is key.

How to Calculate Your Borrowing Power

Your borrowing power is the amount a bank is willing to lend you, and it’s usually calculated based on your income, expenses, and existing debts.

General Rule of Thumb: Most lenders will lend you up to 5 times your annual salary. For example, if you earn 60,000per year, your borrowing power could be around∗∗300,000**.

Factors That Affect Borrowing Power:

Your income (including bonuses or overtime).

Your expenses (like bills, groceries, and entertainment).

Any existing debts (credit cards, car loans, or student loans).

Your credit score (a higher score means better loan terms).

Pro Tip: Use online borrowing power calculators to get a rough estimate, but always speak to a mortgage broker for a more accurate figure.

Additional Costs to Consider

Buying a home isn’t just about the purchase price—there are plenty of other costs to factor into your budget. Here’s a breakdown:

Upfront Costs:

Stamp Duty: This is a state tax based on the property’s purchase price. First-home buyers in Victoria may be eligible for concessions or exemptions.

Legal Fees: You’ll need a solicitor or conveyancer to handle the legal side of your purchase. Budget around1,000–2,000.

Building and Pest Inspections: These inspections can cost 300–600 but are essential to avoid costly surprises.

Ongoing Costs:

Mortgage Repayments: Use a mortgage calculator to estimate your monthly repayments.

Council Rates: These vary depending on your location but typically range from 1,000–2,000 per year.

Home Insurance: Protect your investment with building and contents insurance.

Utilities: Don’t forget to budget for electricity, gas, water, and internet.

Post-Purchase Costs:

Decorating and Upgrades: Whether it’s a fresh coat of paint or new furniture, these costs can add up quickly. Set aside a budget for any upgrades you want to make after moving in.

Maintenance: Older homes may require repairs, so it’s wise to have an emergency fund for unexpected expenses.

Budgeting for First Home Grant Recipients

If you’re using the First Home Owner Grant (FHOG), here’s how to make the most of your $10,000:

Put It Toward Your Deposit: A larger deposit can help you secure a better interest rate and reduce the amount you need to borrow.

Cover Upfront Costs: Use the grant to pay for stamp duty, legal fees, or building inspections.

Save for Emergencies: If you’ve already covered your upfront costs, consider putting the grant into an emergency fund for unexpected repairs or maintenance.

What If It’s Your Second or Third Home?

If you’re no longer eligible for the First Home Grant, you’ll need to save a 20% deposit to avoid paying Lenders Mortgage Insurance (LMI). Here’s why:

LMI Costs: LMI can add thousands of dollars to your loan, so it’s often better to save a larger deposit if you can.

No FHOG: Without the $10,000 grant, you’ll need to rely on your own savings or other financial strategies to cover upfront costs.

Final Thoughts

Setting a realistic budget is one of the most important steps in your homebuying journey. By understanding how much deposit you need, calculating your borrowing power, and factoring in additional costs, you’ll be well-prepared to make a smart financial decision.

Stay tuned for Day 5: Saving for Your Deposit, where we’ll share tips and tricks to help you save faster for your dream home.

Got questions about budgeting or deposits? Drop a comment below—we’re here to help! 🏠✨