Planning your finances
It’s important to understand how much you can afford to pay for a home. There are a range of costs associated with buying a property, not just the purchase price.
Make a budget
If you’re planning to buy a home, having a budget is key to calculating what you can afford to spend on a property and how much you need to save for a deposit.
Budgets are important because they are a practical way to understand your overall financial situation, and help to:
- figure out how you spend your income
- identify areas where you can save money.
For most people, their financial situation won’t stay the same forever. For example, new expenses might come up, or your income might change.
This means you’ll need to make time to consistently review and adjust your budget so it’s always reflecting your actual financial situation.
When buying a home, you’ll generally need to put down a deposit that is equal to at least 5% of the value of the property.
Ideally, you’ll want to save as much as you can for a deposit because you won’t have to borrow as much from a bank or lender. This means you'll pay back a smaller amount of interest.
If you have a smaller deposit, your bank or lender might request proof that you can pay back a loan before agreeing to let you borrow a large amount. Examples of evidence include:
- a high credit score or rating
- ongoing employment
- a consistent savings plan.
A bank or lender might charge you Lenders' Mortgage Insurance (LMI) or a low deposit premium if you have a smaller deposit. This is to protect themselves financially if you default or can't pay back your loan.
You can check how long it will take to reach your home deposit savings goal using the Moneysmart savings calculator