Knowing how much you will need as a deposit on a home is vital to you securing a loan. Generally speaking, the larger the deposit you have, the less money you will have to borrow. But, how do you calculate the amount of money that you will need?
Determining the size of a deposit on a home can be done by working out your borrowing power. Then, estimate your costs, based on the amount you can afford to borrow. Lastly, aim to meet the lending criteria of your financial institution, so you improve your chances of gaining approval. Just remember all lenders have different standards. So you may need to find out what their requirements are, before applying for a loan.
One of the easiest ways to calculate what you can afford to borrow is to draw up a budget. To create a budget, firstly write down what you earn. Include all income such as wages, any government entitlements, and child support payments.
Next, write down all of your expenses. Estimate how much you spend on utilities, your car and on groceries. Also, include any insurances, and any other monthly or annual costs. Do not include your rental payment, as you will no longer be paying this when you have a mortgage.
Later, break all of these figures down into a monthly amount. This approach will give you an excellent idea of your monthly spending. You will also be able to determine what you have leftover every month.
Lastly, use a home loan calculator to work out what you can afford to pay monthly on a loan. Compare home loan rates and then put this up by 2%. By making your interest rate higher, you will give yourself a buffer if should rates rise.
The costs of buying a home typically include stamp duty, mortgage title transfer fees and legal fees. Estimate how much council rates are, along with the emergency services levy, and water. When a property transfers into your name, you will incur all of these fees. Finally, make a provision for conveyancing costs. A conveyancer is a land solicitor who works out all of the expenses of the property. Subsequently, they take care of these for you at settlement.
Stamp duty and mortgage title transfer costs vary depending on the location of the property you are purchasing. To get an estimation of this cost jump online and type ‘stamp duty calculator’ into a search engine. Find a calculator that covers all states and territories.
Council rates, emergency services levies and water rates vary depending on where you are looking to buy a property. Thus, when you find a property you like, ask the realtor how much these rates are. They should be able to give you an annual estimate. As a result, you can then apply these figures to other homes in the same area.
Lending criteria are the requirements of lenders that you need to meet to be eligible for a home loan. These typically include:
1. Employment status.
2. Current income.
3. The level of debt you have.
4. A sound credit history.
5. A savings history of 6-months or more.
6. The size of your deposit.
You will need to save at least 20% of the purchase price of the property you wish to buy. Saving this amount, will allow you to meet lending criteria and avoid paying Lender’s Mortgage Insurance. Plus, you should also aim to cover any expenses incurred by the purchase. Following this guideline will give you a greater chance of securing a loan.