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Working out what you can afford and what you can borrow

There aren’t many of us that can buy a property without borrowing some money to make the purchase. Before you start applying for home loans there are few things that you should look at to work out how much you need, what you can afford and how much you might be able to borrow. 

To get a home loan you’ll need a deposit.  Most lenders require that you have at least 10 per cent of the property price, but will often prefer 20 per cent or more. If you are going through a lender that will lend you more than 80 per cent of the property’s value, you’ll probably need to pay Lenders Mortgage Insurance. 

In working out what you can afford to buy, you should factor in more than just the deposit. You’ll need to calculate your mortgage repayments, other costs involved in owning a home like body corporate fees, council rates, insurance and repairs, as well as how you can still cover the costs of daily life. It’s important to still live, but you may need to make some adjustments to your lifestyle for a certain period of time. Considering all of these expenses will help you get a full picture of what you can afford buy and how much you should borrow. 

The amount you can borrow comes down to what you can afford to repay. As a guide, your monthly repayments should not exceed 25 per cent to 30 per cent of your monthly income before tax. If your monthly loan repayments are higher than this, your loan could be unaffordable. 

Mortgage repayment calculators can be helpful tools in crunching the numbers but remember they are just estimates and the actual figures may differ slightly.