On a Property Quest: How do you know when you can afford to buy?
So you’ve decided you want to become a homeowner. Whether it’s something you’ve been thinking about for a while, or you’ve woken up with a desire to get your foot on the property ladder, you need to ask yourself the first big question:
How do I know if I can afford to buy a house?
If you’re not sure how to answer this question, you are not alone. That is where we come in. There are a few big pointers that determine if you’re ready and able to afford the responsibility of a mortgage.
1. You’ve got a substantial deposit
And the bigger, the better. A 10% deposit of the purchase price, plus enough to cover the upfront costs of stamp duty and legal fees, is usually a great indicator that you’re semi-ready for the responsibility of home ownership. The bigger your deposit, the lower your interest rate. If your deposit is less than 20% of the property value, your ingoing costs will be higher, and you could be charged a higher interest rate.
2. You’ve developed a regular savings habit and stick to a budget
Having a history of regular savings in your bank account, plus a solid track record of employment, awards you a gold star in the eyes of a potential lender. They use your past financial history, credit rating and current debts to assess your reliability as a borrower, so the better it looks, the easier it will be for you to take out a home loan.
3. You’re familiar with the state of the market
If you have done some solid research into the state of the market, determined the best time to buy and considered what areas would suit your lifestyle, you’ve already taken steps in the right direction.
4. You have additional savings and a forward-thinking plan
It’s important to realise that owning a home is an ongoing expense. If you already knew this, fantastic. Remember to leave yourself a little bit of wiggle room in case your circumstances change. Having additional savings stashed away for a rainy day can make all the difference if you lose your job, get sick or experience an interest rate rise. It’s also important to consider whether your income may increase in the future if you are likely to have children or get married. These things can have an impact on your ability to make loan repayments, so it’s a good idea to keep these things in the back of your mind.
5. You’ve spoken to a mortgage broker
The most important thing you can do to determine whether you’re ready is by asking a professional. A mortgage broker or lender will be able to point you in the right direction and tell you whether you can afford a home with your circumstances. It is important to note that even if one lender may reject your application, another bank won’t. A mortgage broker can assess what you can and can’t afford and tailor your loan to suit your needs.
At Select, we offer free, no-obligation and quality advice to help you reach your financial goals. If you’re unsure about whether you are ready to buy into the property market or are looking for a broker to break the process down, give us a call on (08) 9417 3399 to talk to one of our brokers.