How much can you borrow?
Borrowing capacity depends on your income, financial commitments, loan type, credit history, employment history, loan type, savings, and assets, etc. Knowing your borrowing capacity will help you narrow down your property search and allow you to understand what your financial commitments will be.
Tip: For buying a property through auction, consider applying for a pre-approval.
How much can you afford to repay?
Not only is your borrowing capacity important, but your repayment ability matters too. Being realistic about repayments will allow you to service your loan without over-exerting yourself. So, start planning your budget once you’ve understood your range of borrowing.
Lender’s Mortgage Insurance(LMI)
Loan to Value Ratio (LVR) calculation is used by lenders to assess their risk of lending a loan to you. It considers your borrowing amount against the value of property you’re wishing to purchase. A higher ratio means higher risk for the lender.
In general, if your LVR score is more than 80%, i.e., you want to borrow more than 80% of your desired property’s value, the lender will ask for an LMI premium. This premium, paid by you, will insure the lender against any loss that might happen if you are unable to pay off your loan or default in payment terms.
An alternative to LMI premium is having a family member sign as a security guarantor for your home loan.
For those eligible, First Home Owner Grant (FHOG) is a fabulous bonus for budgeting the purchase plans of the first home. However, factoring it correctly into the calculations is important.
FHOG is included while calculating your Loan to Value Ratio (LVR) and thus can avoiding LMI premium, given that FHOG coupled with your other savings must add up to total of at least 20% of the property’s value.
Note:FHOG is paid only when the construction stage arrives. So, you must not consider it into your land purchase calculations.
Since the regulations and grant value vary from state to state, consult a mortgage broker to assess your eligibility for the FHOG. They will also work with you in planning the purchase better and ensure that everything is done correctly.
Additional associated costs
As a general rule, have a budget of approx. 5% on top of your home’s purchase price for additional things associated with buying a house, such as:
- Pre-purchase inspections for pests and constructional faults and defects, illegal work, insurance, disputes, levies, history of repairs etc.
- Borrowing costs- Loan application fee (~$700), Lender’s property valuation fee (~$300), and Lender’s Mortgage Insurance (LMI). (these fees can be reduced or made nil depending on the bank’s own discretion)
- Government charges- Stamp duty, property transfer fee, and mortgage registration fee.
- Insurance- Home and contents insurance, Mortgage protection insurance, Income protection insurance.
- Legal and conveyancing fees- (~ 2% of the price of the property)
- Moving in costs- Furniture removal, utility connections, strate fees, and postal redirection.
Note: These figures are indicative only and can change based on market conditions and individual circumstances. Please reach out to ARG Finance to get the more accurate estimates.