How to Budget For First Home Buyers

Buying your first property is one of the most exciting experiences of your life. Regardless of whether you’re buying or building your first home, property ownership brings with it freedom, pride and, of course, expense. Budgeting for your first home is a necessary practice that takes perseverance and commitment, often over a period of years. However, thorough financial planning is one of the most important things to consider when buying your first home. Luckily, there are a number of tips and frameworks you can use to ensure that the costs of buying your first home are manageable for your financial situation.

How Much Money Do I Need to Buy a House in Australia?

One of the most important steps in budgeting for your first home is having an accurate idea of how much money is required to purchase the type of houses you are looking at. Research from Finder in November last year showed that the minimum household income required to buy the average house in Australia now sits at $182,000. 

If you are building your first house, you can reach out to your home builder for indicative pricing on the exact design you have chosen. Otherwise, search online for listings of similar homes in your area, speak to estate agents and browse auction results to get an idea of what you’ll likely pay for your first house.

How Much Deposit Do I Need to Buy a House in Australia?

Budgeting for your first home generally begins with saving for a deposit, and then borrowing the balance in a fixed or variable rate mortgage. In fact, nine out of ten first home buyers involve a mortgage, according to the Reserve Bank of Australia. 

However, there are some risks associated with mortgages that have a smaller deposit. The combination of higher repayments and possible variations in interest rates means you could exceed your maximum repayment capacity in the future. If you take out a mortgage with a deposit under 20 percent, you will also need to pay Lenders Mortgage Insurance (LMI) as a result of the heightened risks.

The Costs of Buying Your First Home

Effective budgeting for your first home doesn’t stop once you’ve been approved for your mortgage. There are a number of other costs associated with owning and living in your home. Some of these expenses only apply if you decide to build your first home, while others apply to both new builds and existing properties.

Upfront Expenses

Upfront expenses are those paid before or during the settlement process. These costs are usually disclosed in advance, meaning you have time to prepare and budget effectively to cover them.

• Professional Fees: Legal counsel, including solicitors and conveyancers, assist with the purchase of your home.
• Building and Pest Inspections: Having your new or existing home inspected by a professional will incur an extra cost, but will provide extra peace of mind that the building is safe to live in.
• Stamp Duty: A percentage of the home’s value, which is paid to the relevant state or territory government.
• Lenders Mortgage Insurance: An additional insurance policy which must be taken out on mortgages with a deposit of less than 20 percent.

Hidden Expenses

No matter how new your home is, unexpected costs will always crop up. An important part of budgeting for your first home is setting aside enough money to cover these incidentals, should they crop up.

• Moving Costs: The cost of hiring a removalist and purchasing packing supplies can quickly add up, especially if they are needed at short notice.
• Immediate Repairs: Even if you have thoroughly inspected your property, and had a professional building report created, there are still some issues which may have been overlooked. A few weeks of living in your new home may net a list of things that need immediate attention.
• Body Corporate/Strata Fees: Properties in shared apartment or unit complexes may incur additional charges to be paid to the body corporate, covering maintenance of shared spaces.
• Utility Connection Fees: Connecting essential services, such as water, electricity, gas and internet, may pose challenges for technicians that incur extra expenses.

Ongoing Expenses

Finally, there are a number of expenses that you will need to budget for in order to maintain and live in your home. A comprehensive budget for first home buyers should include enough money to cover these expenses on top of the purchase price. 

• Property Insurance: Scheduled payment of a premium to protect your building and its contents.
• Council Rates: Value-based fees paid to the local council either annually, or every quarter.
• Utilities: Regular costs for using electricity, gas, water, internet and sewerage.
• Maintenance: Routine charges for lawn and garden care, internal cleaning, servicing of air conditioning systems, and any urgent repairs needed. 

How to Budget for First Home Buyers: A Step by Step Guide

An effective and realistic budget for first home buyers is the first step to ensuring financial success when joining the property ladder. We’ve put together a list of steps to create an effective financial plan when purchasing your first home.

1. Review your income and expenses: Analyse your current situation, and how much of your income you spend on expenses. You can exclude your rent payments if you are looking at buying a house that is ready to live in.
2. Follow the 28/36 rule: The 28/36 rule is used to calculate your debt-to-income ratio. While it is only a guide, it suggests that no more than 28 percent of your monthly income should be spent on housing costs, and no more than 36 percent of your income should be allocated to repaying all your debts combined.
3. Manage your debt and credit score: Build your credit score while managing your debt in line with the 28/36 rule. Having a higher credit score will likely return more favourable mortgage rates when you come to buy your first home.
4. Open a high-yield savings account: Research the highest-paying savings accounts available through banks and credit unions. Ensure you understand their terms and conditions, and choose one that suits your savings goals.
5. Speak to a mortgage broker: As you build your savings goals, speak to property-savvy mortgage brokers to find out exactly what a mortgage on your first home could look like. 

Simplify Budgeting For Your First Home Purchase or Build

Creating an effective budget for your first home purchase sets you up well for future property successes. Reviewing mortgages from different lenders with varying interest rates and deposit amounts will help you choose the most suitable option for your circumstances. A realistic budget for first home buyers should also include other costs of home ownership, including unexpected and ongoing expenses.

Building your new house may seem like a daunting option, especially as a first home buyer, but it opens up a world of possibilities to design the perfect house for your needs. Follow the tips listed above in order to effectively budget for your first home build, and browse Eden Brae’s extensive catalogue of house and land packages to find the perfect design and layout for you.