How to set a budget for your first home: A beginner’s guide
Buying your first home? Learn how to set a realistic home buying budget with tips to stay on track, save smart, and feel confident every step.
As a first-time home buyer, it can be overwhelming trying to work out your house budget and how much you can afford to spend. So, to help you navigate this tricky process, we’ve pulled together a few tips to help you with your first home budgeting.
How much do I need to buy a house?
If you're a first-time buyer, there’s a good chance you’ve wondered, ‘Exactly how much can I spend on a house?’ Unless you’ve got enough savings to buy a new home with cash, you’ll need to take out a home loan with a bank or lender.
Most first-time home buyers are familiar with the concept of a deposit. As a general rule, most banks and lenders like to see a deposit of at least 20% of the purchase price. Otherwise, you could be hit with Lenders Mortgage Insurance (LMI) or a Low Deposit Premium (LDP) to help offset the additional risk to the lender.
That said, you might not be aware of some of the other upfront costs that come with buying a home. From stamp duty and building and pest inspections to conveyancing fees and mortgage registration costs, you’ll need to account for all these extra charges in addition to your house deposit.
All these extra costs can set you back thousands, if not tens of thousands, on top of your deposit, so it’s essential to do your research to make sure you’ve got enough cash in the kitty to buy a house.
How much should I spend on a budget?
When it comes to working out your budget, it often helps to work backward by starting with how much you’ll need to cover your deposit as well as all those extra upfront costs. Follow these steps to help you work out how much to save towards your budget.
Step 1. Work out your borrowing power
First things first, you’ll need to figure out how much you can borrow for a property based on your current financial situation. You can work with a mortgage broker or go directly to your bank or lender to determine your borrowing power.
They’ll review your financial situation, including your income, expenses, debts, liabilities, and credit history to see where you stand. This will give you a good idea of what you can afford and how much you’ll need to save toward your deposit.
Alternatively, you can use a borrowing power calculator to figure out how much you can borrow.
Step 2. Understand your income and expenses
While you would have provided details of your income and expenses to get an idea of your borrowing power, it can be worth spending some time reviewing your own figures to understand how much you have coming in and going out of your bank accounts.
Make sure you’re honest with yourself. If you try to fudge the figures, there’s a good chance it will come out later down the track and you could risk getting knocked back for a mortgage. From here, you’ll be better positioned to create a realistic budget.
Step 3. Start budgeting
Now for the fun part, budgeting. Ok, budgeting might not be everyone’s idea of fun, but it could lead to a huge payoff if you’re keen to buy your first home.
Once you’ve assessed your income and expenses, it’s time to drill down to figure out where you’re doing well with your money and where you could be doing better.
When it comes to budgeting, the goal is to maximise your savings and minimise your expenses. Take a good look at your spending habits and pinpoint specific expenses that you can cut down on or cut out completely. Some of these expenses may seem insignificant, but they can quickly add up. From eating out and subscription services to public transport and entertainment, there’s a good chance you’ll be able to find some areas to save on.
But remember, just because you’re in budgeting mode doesn’t mean you have to miss out on everything. You should still include the things that bring you joy in your budget, it’s just important to be mindful of your spending habits.
Depending on your pay cycle, you might want to set a weekly, fortnightly, or monthly budget to make sure you’re covering your necessary expenses while saving cash for your home deposit.
Step 4. Manage your debt
Do you have a credit card, personal loan or car loan? As part of your budget, you might decide to set aside a bit of cash to help pay down some of your existing debt. When it comes time to apply for a home loan, your lender will consider your debts when assessing your loan application.
Ultimately, the more debt you have the less you’ll be able to borrow, so it could be worth spending a bit of time paying off your debt before buying a home.
Step 5. Set realistic goals
While it’s essential to have an end goal for your budget, it can help to break down your overarching goal into smaller, more manageable goals. Saving for a home deposit takes time and commitment.
Setting realistic goals can help you stay on track with your saving objectives, which can help keep you motivated throughout the time it takes you to save a house deposit. If you set overly ambitious goals, they’ll be more challenging to achieve, which could make you feel unmotivated if you fail to accomplish your goals.
At Unloan, we understand how daunting it can be as a first-time home buyer, which is why we’ve created a range of resources just for you in our Learn Hub. From navigating the home-buying process to learning about home loans, we’ve got you covered with our collection of tips, articles and clips.
Unloan is a division of Commonwealth Bank of Australia.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Tax law is complex and subject to change. For the latest information, check the ATO website or with your accountant or financial advisor.
Unloan is a division of Commonwealth Bank of Australia is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Applications are subject to credit approval, satisfactory security and minimum deposit requirements. Full terms and conditions are found on our Unloan Terms and Conditions. Modified Terms and Conditions will be set out in our Notice of Variation Agreement, if you are approved. This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.
