How Much House Can I Afford?

Work out how much you can afford to borrow to buy your new house and compare your home loan options with Savvy.

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, updated on August 7th, 2023       

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The first step towards buying your dream home is working out how much you can afford to borrow.  Although this may sound simple, there are many different factors which will affect your borrowing power, or the amount you can afford to spend on a house based on your salary.

Read on to find out how lenders decide how much to loan a particular borrower and what you can do to increase your chances of getting loan approval.  Once you’ve worked out how much house you can afford to buy, you can compare home loans with Savvy to find the lowest interest rate available to you today.

How do I work out how much mortgage I can afford?

Many lenders use the ‘30% rule’ to determine how much a borrower can afford to pay on their mortgage.  This rule states that 30% of an applicant’s salary should go to their mortgage, or overall household income after tax. 

While this 30% rule is a useful general guide, it’s important to complete a detailed household budget before deciding the exact amount you can afford for loan repayments, which in turn will determine how much you can borrow (along with how much deposit you’re able to provide).

Use our step-by-step household budget guide below to help you complete an accurate household budget.  Once you’ve worked out your disposable income, which is the money left over after all necessary bills are paid, use Savvy’s home loan repayment calculator to find out which home loans are affordable for you based on different loan amounts, term lengths and interest rates.

How can I get enough money for a deposit?

Many young people, particularly in capital cities like Sydney and Melbourne, struggle to afford the 20% of purchase price traditionally required for a first home loan deposit.  However, there are ways around this, such as:

Apply for a low-deposit loan

You can apply to lenders who offer loans requiring only a 5% or 10% deposit.  Savvy can help you compare low-deposit home loans to see which may be best for you.

Pay Lenders Mortgage Insurance

You will be required to pay Lenders Mortgage Insurance to get a loan with less than 20% deposit in most cases.  This is an insurance policy that protects the lender if you default on your loan; the borrower is responsible to pay the insurance premium, which may amount to several thousand dollars and reduce your overall borrowing power.

Ask a family member to act as a guarantor

Parents or grandparents sometimes agree to act as a guarantor to enable younger family members to get approved for their home loan with a deposit of less than a 20% without having to pay LMI.   The guarantor should have a good credit rating and be prepared to provide their own personal financial details to the lender. The guarantor guarantees repayment of the loan and becomes responsible for repayments if the borrower defaults on the loan.

 Apply for government assistance

There are many government schemes available to first home buyers to assist with the cost of a deposit.  The federal government’s First Home Loan Deposit Scheme has helped thousands of young Australians own their own home by guaranteeing up to 15% of their deposits, meaning you can get approved with as little as 5%.  Other state initiatives include the First Home Owner Grant, which provides a lump sum of $10,000 to $15,000 to eligible recipients depending on which state you live in.

What additional costs do I have to budget for when buying a house?

  • Loan interest – this is the biggest cost attached to a home loan and will be the most important deciding factor when you work out how much mortgage you can afford. Because interest will cost hundreds of thousands of dollars in most cases, it’s likely to eat into the actual loan amount you’re eligible to receive.
  • Stamp duty – which differs from state to state and can vary from less than $200 to thousands of dollars. Many first home buyers qualify for exemptions.  Calculate your stamp duty here.
  • Title transfer fee – a fee levied by state governments to transfer the title of your new property. These also vary from state to state.
  • Mortgage registration fees – which range from $107 in NSW to $189 in the NT
  • Conveyancing fees – which can range from $700 to $2000
  • Mortgage application/establishment/setup administration fees – which are charged by some lenders, and can range up to $700
  • Building and pest inspection fees – around $300-$500
  • Home, building and contents insurance – budget around $1000 per year (but insurance premiums are payable monthly)
  • Furniture moving – which will vary depending on how much furniture you have to move
  • Utility connection charges – to connect things such as your gas, electricity and internet

How to work out your household budget

More of your frequently asked questions about home affordability

Will my credit history affect how much house I can afford?

It possibly will.  If you have prior defaults or a bankruptcy on your file, your lender may not be as willing to lend to you and won’t be offered the lowest interest rates.  Higher interest rates mean higher repayments, which will affect the size of the mortgage you can afford.  However, if you don’t have major blotches on your record, your credit score is unlikely to play a major role in your borrowing power, as a home loan is considered a safe finance type due to being backed by a significant appreciating asset.

Is it possible to get a home loan with no deposit?

Yes – there are circumstances where you can get a loan with no deposit, such as applying with a guarantor who offers home equity as security for the loan.  However, the majority of lenders will ask for at least a 5% deposit under all circumstances.

Can I get an interest-only loan now, then pay principal and interest later?

Yes – you can start with an interest-only loan and then refinance later if you can only afford a smaller monthly payment in the short term, but remember this may cost you more interest in the long run.  This is because the time spent paying only interest means you aren’t reducing the size of your loan principal.

If I apply with a guarantor now, can I take them off later?

Yes – if you refinance when you’ve built up more than 20% equity in your home, you can remove your guarantor and use your own equity as security for the loan.

Is there anything I can do to increase my chances of getting loan approval?

Yes – there are many things you can do. Before you apply for a home loan, pay off any other debts you may have, ensure your credit cards are paid and reduce their limits, as these will increase the amount you’re able to borrow and potentially increase your credit rating.

Can I add the cost of LMI onto my home loan?

Yes – in some circumstances, you can pay off your LMI over time by having it covered by your loan payments, although most lenders do ask for the premium to be paid upfront.

Can I still buy a house if I'm self-employed?

Yes – many lenders can offer loans to self-employed people.  It is estimated that around 17% of all Australians are self-employed, so they represent a sizeable portion of the home loan market.

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