Borrowing Guide for First Home Buyers

While buying your first home is a big decision, there are also lots of small decisions to make along the way to homeownership. To help you navigate the process, we’ve gathered suggestions to help you avoid some of the most common mistakes. 

Set a Budget - Find Out What You Can Afford 

Use a borrowing capacity calculator to get an idea of how much you can afford and work out the repayments for this amount. Making sure you can meet your projected future home payment is probably the most important part of successful home ownership. 

Note: Lenders actual loan assessment software is far more comprehensive than any ‘how much you can borrow calculator’ available online, your true borrowing capacity may differ from the online calculator when actual application assessment is undertaken.  

Include Loan Repayment as Well as Cost of Taking Out a Mortgage in Your Budget.  

Mortgage repayment calculators will show you how much you'll pay toward principal and interest portion of the loan every month. Remember that you'll also have to pay government cost and if borrowing over 80% of property value, lenders mortgage insurance with initial loan amount. Some financial institutions will allow you to add these costs into the amount borrowed. Be sure to find out and understand what will be included in your monthly payment. 

Know how much cash you'll need at Settlement. 

 When you buy your home, you’ll need cash for a deposit payment and costs such as Stamp duty, Mortgage registration, Transfer of title and Conveyancing to name a few. The customer contribution typically varies from 5% to 20% or more. Putting less than 20% down will typically require you to pay for lenders mortgage insurance (keep reading for more on that).   

Budget for Lenders Mortgage Insurance.  

For conventional financing, LMI is typically necessary if you don't make at least a 20% down payment when you buy your home. Make sure you know how much of this cost will be factored into your monthly home payment budget. 

Research your utilities.  

If you're moving into a larger home than you're used to, a home that is newer or older than you're used to or located in a climate that's hotter or colder than you're used to, ask your real estate professional to find out what the home's energy bills have typically been. This can help prevent being surprised by a higher utility bill than you're expecting.  

Don't Forget Cost of Living Expenses.  

Be sure to budget for moving expenses and additional maintenance costs. Newer homes tend to need less maintenance than older ones, but all homes require upkeep. If you're considering a unit or a townhouse with a body corporate remember to include body corporate levy in your budget. Keep in mind that you should have an emergency fund on hand to prepare for any unexpected changes in your income (like reduction in your wages) or unexpected expenses (like medical bills). All these are additional to your lifestyle cost.  

Manage your debt carefully after your home purchase.  

Sometimes your home will need new appliances, landscaping or maybe even a new roof. Planning for these unexpected expenses carefully can help you avoid one of the most common causes of missed mortgage payments: carrying too much debt. It's important not to overextend your credit card and other debts so you stay current on your payments as bad conduct will hinder your future mortgage application.