The first step is to do a budget.
You will need to sit down – in case any of the figures surprise you! From your seated position, work out your annual income and ALL your expenses. Check all your bills to work out the annual cost. If you are buying as a couple, do a combined budget. Allow for some inflation in costs and a contingency for unbudgeted expenses. Provide for maintenance costs, rates and bills at your new home too. You can find template budgets online, in various books and now-days on apps.
From this exercise, you will be able to see how much you can afford to spend on interest and any repayment costs. Remember that if this is your first home, you can get help with the First Home Owners Grant.
You will also need to do a stocktake of all your assets and liabilities.
Armed with this information, you can hop online and use online home loan calculators, such as the free one on the Bankwest website. This will allow you to work out how much money can be borrowed, what the repayments would be and to compare alternate home loans in the marketplace. A good example is the Keystart ‘Low Deposit’ home loan which is a variable interest rate loan which can be used by owner-occupiers to buy an established home or build a new house. It is available to both first and non-first home buyers and we lend across the State of Western Australia.
You will find a choice of fixed home loans and variable rate loans. Fixed loans give you certainty in your expenses over a period of 1 to 5 or sometimes up to 10 years. It removes the uncertainty of variable rates. But the downside is that fixed rates can lock you in if interest rates fall or your circumstances change.
Work out if you have enough funds for a deposit. Additional mortgage insurance costs can apply unless you have a 20% deposit. Check out the loans in the market though, you might qualify for low deposit loans from a financier, bank or Keystart.
If you want help with all of this, a banking, broker or financial specialist can assist you do the sums. Even better, they may be able to give you a pre-approval before you go shopping for a home.
You also need to be careful to allow for all costs when pricing your new home. This is not only the building price, but will sometimes need to also allow for finishings, fixtures and fittings and landscaping costs. Even with fixed price building contracts, you may have variations, extension of time costs and other adjustments. So allow for a contingency amount there too.
Stamp duty might also apply to land purchases or the total cost of an established home. This is a big cost you need to budget for.
Good luck with your new home purchase, it is a major investment so it is worth doing all the preparations above to be able to afford and enjoy your new home.