Understanding how much you can borrow is the first and perhaps most important step you’ll take towards owning your first home. And the good news is you could be there in less than five years.

Buying your first home will probably be the most exciting purchase you ever make; it will also likely be your biggest and most expensive investment to date. Saving for a deposit can seem like a daunting prospect, but data compiled by the ABS shows1 that, while there are big regional differences, the national average is just 4.6 years of saving before a first-home-buying couple has sufficient capital to enter the market.

Making informed decisions will help you own your home faster, and knowing just how much you can afford to borrow today is the first small step of your home-buying journey.

 

Just how much do I need for a home deposit?

To buy a home in Australia, you need a minimum deposit of 5% of the value of the house or unit you want to buy2  – however, many lending institutions will have an eligibility criteria requiring a 10% or 20% deposit. Of course, the larger the deposit you have, the less money you’ll need to borrow, and the less interest you’ll pay on mortgage repayments as a result.

Keep in mind that the purchase price on your dream home is not the only expense you’ll face when entering the market. Other costs include stamp duty, loan application fees, legal fees, moving costs, inspections, and home and contents insurance.

How much can I borrow?

While it’s easy to think that banks will lend you money based solely on how much you earn, it’s a little more complicated than that. Your salary is certainly an important factor in determining your borrowing power, but a number of factors also come into play when assessing your ability to make loan repayments. These include:

  • whether you are the sole household income provider or whether there are two of you contributing and taking on the loan
  • whether you have a regular salary, or get paid on an ad hoc basis
  • how many dependants you have (if any)
  • your average monthly expenses
  • your credit history, total credit cards and their limits
  • any personal loans you might have
  • your loan term and how soon you want to pay your loan off.

Once you’ve gathered all this information on your financial stability, there are easy-to-use online tools, such as the AMP borrowing power calculator, that will help you gauge just how much you can afford to borrow.

How much should I borrow?

This is a question you need to ask yourself before you buy a home. You need to consider all factors that might impact on your overall financial situation and lifestyle. Be realistic and assess things like your job stability (will you be able to cover loan repayments if you’re between jobs?) and the health of the economy (will you be able to cover the repayment amount if interest rates rise?).

Your borrowing power should help guide your purchase

Once you’ve established how much you can, and should, borrow, it’s a good idea to use that information to make decisions about how you’ll approach the property market. Knowing what you plan to borrow can guide not just the number of bedrooms and bathrooms, but also the location, suburbs and property types that are right for your finances.

What are the next steps to becoming a home buyer?

Before you borrow or buy, there will be other financial factors to consider too — things like your credit rating, eligibility for financial assistance, and the ongoing costs of property purchase. Read our tips for first home buyers. But, borrowing money for your first home can be less stressful if you take the first important step of considering how much you can and how much you should borrow.

Once you have a general idea, it’s time to chat to the experts:


1 ABC News (2017), A tale of two cities reveals vast gulf in housing affordability, 5 December 2017
2 First Home Loan Deposit Scheme: https://nhfic.gov.au/media/1236/fhlds-fact-sheet.pdf

Pre-qualify for your home loan

Could you borrow the amount you want?

Important information

This information is provided by AMP Life Limited ABN 84 079 300 379 (AMP Life). It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling 13 30 30, before deciding what’s right for you. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.

All banking products are issued by AMP Bank Limited ABN 15 081 596 009, AFSL and Australian Credit Licence 234517.

All information on this website is subject to change without notice. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability for any resulting loss or damage of the reader or any other person.