How much should I borrow?
If you are wondering how much should you borrow when buying a home, you need to consider how much you can comfortably repay. Our online home loan calculator helps you work out how much you can borrow but working out how much you should borrow can be a little more difficult. Every lender has different requirements; most will review your income, financial commitments and debts. Essentially, banks need to consider the risks involved from their end when lending. They need to ensure you are in a comfortable position to be able to repay your loan now and into the future.What the banks will ask:
Net income
How much you clear after tax
Do you have one salary or two?
Do you have other sources of income?
How long have you been with your employer?
Are you self-employed?
Are you working full-time?
Do you have a car loan, HECS debt, or credit card debt?
Do you use buy now pay later services?
Do you have credit cards?
If so, how many?
What are the combined limits?
What kinds of interest rates are you looking at?
Will you be able to afford a variable interest rate should the market change?
Things you should consider when determining how much you should borrow:
Do you have a budget?
While a bank will review how much you can borrow, they are considering these circumstances from their own risk assessment. Only you can review your situation and lifestyle to consider how much you can afford to repay and still live the life you desire. One of the best ways to do this is to create a comprehensive budget that looks at your income, expenses and how you can best disperse your money. Need help putting together your budget? Download our free Budget Planner today! Remember to factor in unexpected expenses. In reality, things will happen when you least expect them – funny how that happens! The best way to manage these situations is to be prepared and have an emergency fund that you can access when and if these situations arise. In undertaking this process, it is often much easier to see how much you should borrow to achieve your desired lifestyle while looking at the bigger picture.How much of your income do you feel comfortable putting towards your mortgage?
Typically, mortgage stress is defined as a situation where someone is spending more than 30% of their household income on mortgage repayments. However, it’s not always that straight forward. People may choose to pay more than 30% of their income to reduce their debt or, if they have a higher income, they may be in a position where they can comfortably attribute more than 30% of their income to their home loan repayments. It’s important to review your circumstances to see what would work best for you. You may have an idea around how much you should borrow, but we suggest discussing this with your finance broker.What associated costs might I incur?
Mortgage aside, there are several additional costs you should keep in the back of your mind when purchasing a new home, including:- Stamp duty
- Insurance
- Furniture
- Landscaping and fencing
- Rates
- Bills and utilities