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How to Set a Budget and Calculate your Deposit when Buying your First Home

As a first home buyer, your budget will be based on how much money you can borrow. Before looking at properties for sale in your favourite suburbs it is important to consider your deposit and borrowing capacity.

Initially, it is a good idea to speak to a lender or mortgage broker, even if you don’t have a large deposit saved, they will be able to advise you how much you will need for a deposit for the type of properties you are interested in. This will give you a goal to work towards when saving.

A lender will be able to calculate your borrowing capacity based on your income, savings, assets, expenses, and credit history. Although the lender will advise the maximum amount you can borrow it is a good idea to take into consideration your other expenses when determining how much you should spend on buying a property. Mortgage repayments increase with a higher amount borrowed, and the other costs associated with owning a home can quickly add up.

A good way to do this is to compare your after-tax income with your estimated ownership and living expenses including leisure activities. If there is not much left over for non-essential things like eating out and holidays you might be better off borrowing a smaller amount so you can still enjoy all the things you love.

Although it is possible to purchase a home with as little as a 5% deposit, the more you contribute from your savings towards the purchase the better. Purchasing a property with a larger deposit allows you to take out a smaller loan meaning your repayments will be less. Having a bigger deposit also means you will start your journey with more equity, this is important for later down the track when it comes time to upgrade your home.