Know Your Property Budget

May 1, 2017 | Borrowing Capacity, Residential Finance, SMSF Finance

When beginning your search for a new property you must know what you can afford to spend and know your ability to repay.

The amount you borrow will depend on a number of factors, such as income, other liabilities and household expenses. Every bank has their own loan assessment calculators and specific policies which is why some Banks will offer you more lending than others.

To get a quick insight into your borrowing power, use the Bankwest borrowing calculator, found here.

What Repayment can you afford?

Working out and understanding how much cash you will have available month-to-month, it’s always beneficial to use a budget planner, CBA’s budget planner, found here.

This gives a peace of mind that once you settle on the property enough cash will be made available to repay the loan repayments but also all the other household expenses.

At Blue Crane Capital, our general guide is that your home loan repayments shouldn’t be more than a third of your gross salary.

Once the budget planner has been completed, use these results to work out what your repayments will be, and options to significantly repay your loan by changing the overall loan term and repayment frequency.

Bankwest’s home loan repayment calculator is user friendly, found here.

Approval in principle

Approval in principle is also known as a ‘conditional approval’.

What this means is your loan is approved subject to the lenders criteria (eg, verification of income, bank statement conduct, valuation and credit checks) being satisfied.

This is the best way to confirm how much you can borrow, it also means that you:

  • Know you limits (when at auction) – maximum amount you will be able to borrow and the deposit size you will require;
  • Be treated as a serious buyer from the agent;
  • Give you (the prospective purchaser) the confidence to commit to purchase;

Please note, these conditional approvals are only valid for three months.

Lastly, always keep in mind the transactional costs involved with buying a property, like stamp duty (and the timing of payment), builders reports, pest inspections and insurances. This is often forgotten and not budgeted prior to purchase which can lead to equity shortfall prior to settlement.

This Bankwest Home Loan fees calculator is another fantastic tool which can help you understand the relevant purchasing costs associated with buying a property, found here.

We would recommend engaging Blue Crane Capital at the start of your property search to help cut through the confusion with lender policy and crystallising your borrowing capacity. Blue Crane Capital will take away the ‘heavy lifting’ with your loan application but also facilitate in achieving a quick turnaround in terms of receiving a conditional approval from the lender.

Chris Hall is the Managing Director of Blue Crane Capital – Mortgage broker and Debt Advisor.

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m:        +61 400 680 670

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