How Much Money Should I Have Before I Buy a House?
This is a complicated question. There are a few factors that go into determining when you have enough money to buy a house. One factor is the price of the home you want to buy. The cost of your home is the most important factor because it determines the other two factors: deposit and loan size.
Traditionally, most Australian lenders require at least a 10% deposit when applying for a home loan, but 20% allows you to avoid paying lenders mortgage insurance. However, lately, some lenders have been approving home loans with a deposit as small as 5% of the property value. In addition, if you have a guarantor, you may not even need a deposit.
Loan Size and Loan Repayments
The price of your home determines the size of the home loan you need. When deciding whether or not you can afford the loan you apply for, your lender will assess your income. Most lenders assume around 30% of your monthly income will be used to make your loan repayments. So when determining your income, your lender will look at your financial documents, including bank statements, payslips, and tax returns. In addition to your income and deposit, your lender may also want to see evidence of 5% of the purchase price in genuine savings. This genuine savings shows you are financially responsible and reassures your lender that you can repay your loan even if you have a difficult financial situation later on.
Several factors determine how much money you should have before buying a home. If you are looking for a home, the experts at Mortgage House can help you understand how much money you need and how large of a loan you can afford to pay back.