How much house can you afford?

Published on November 23rd, 2020
  Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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Knowing what type of house you can afford all boils down to how much you can borrow. Most people may save up for a deposit, but still need to get a home loan to get their hands on a house. Knowing how much you can afford can also help you prepare your budget for ongoing home loan expenses. This guide breaks down how you can calculate the amount you can borrow.

How much you can afford is influenced by how much you earn

No matter where you choose to go to take out a home loan, the amount you will be approved for will inevitably be determined by how much you earn. Lenders look at your income and expenses to determine how much you can borrow to ensure that you will be able to meet your mortgage repayments. To work out how much you can borrow you can draw up a list of your income and expenses, along with ongoing repayments for your debt and credit card.

Checking your credit report and your credit score

Your credit report and credit score are two of the most important things that lenders look at to determine your credibility in taking out a home loan. Your credit report is based on your history of paying back your loans and bills on time, if you have defaulted on payments, have debt, or have been declared bankrupt. Checking your credit report for any errors or arrears and fixing these can improve your borrowing power.

Make use of a loan calculator

Already have a potential amount you wish to borrow but not sure how much it will cost you in repayments? Using a loan calculator is a good way in which borrowers can find out whether they will be able to afford a loan or not. Loan calculators let you fine-tune the details of a mortgage to see if the amount you want to borrow will be suitable for you. You can input details such as:

  • Term of the loan
  • Interest rate
  • Your gross income
  • Untaxed income
  • Expenses (other expenses)
  • Car loan repayments
  • Your credit card limit
  • Number of dependents

The interest rate

Your home loan interest rate will play a major factor when it comes to meeting your monthly repayments. It is vital that borrowers compare home loans based on the interest rate and comparison rate to see whether it is affordable or not. Keep in mind that the lower the interest rate the more affordable the loan will be for you. It could also act as a buffer for when the interest rate rises.

Saving up for a deposit

Having a deposit saved up can be one of the best things a borrower can do. It can possibly help you in terms of your borrowing power when it comes to your loan. Keep in mind that if you borrow more than 80% of the value of the house you could be subject to lenders mortgage insurance (LMI). LMI basically protects the lender from instances where you are unable to meet your loan obligations. Your deposit can also help to cover expenses such as stamp duty and conveyancer fees that come with it.

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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.

The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.

Approval for home loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.

The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.

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