Are you aware of how you actually establish what property you can afford?
Let’s take a look at the steps that you need to take to try and work out exactly what property you can afford.
As human beings, when we see something we like, such as a particular property we might want to purchase, we immediately try and make the numbers work based on our desire. A different approach, and probably a more sensible approach, is to actually work out the numbers first, then go looking for the property.
How do you do this?
Step 1 – Budget
Start by completing a budget. Work out where your money is going, and work out how much you have to allocate towards a mortgage repayment each month.
Step 2 – Mortgage Repayments
Once you know what that figure is, work out what the corresponding loan that equates to.
For example, if you have $2,600 to go towards a mortgage each month, that would equate to a loan of about $545,000, based on an interest rate of 4% per annum over 30 years. Make sure that figure is realistic.
Step 3 – Savings/Deposit
The final step is to look at whatever savings or deposit you have to add to the loan amount in order to establish what property you can afford. If you have worked out that you can afford a loan of $540,000, and you have a deposit of savings of $100,000, you could go hunting for a property valued at around $645,000.
