Many buyers, especially first home buyers, ask themselves: how much should I spend on a house?
Assuming you’re borrowing money to buy your house, the answer depends on:
- How much your lender will allow you to borrow (seek pre-approval to ascertain this), and
- How much you are willing to pay in loan repayments
As a rough guide, your total loan repayments should be no more than 40 per cent of your total income. To get a better idea of what you should spend on a house, sit down and budget the difference between how much you earn and how much you spend each month – what’s left over for home loan repayments? Don’t compromise your standard of living by getting yourself into too much debt!
One way to cut down the cost of your purchase is to decide exactly which costly features of a home you do and don’t want. Consider how important, or unimportant, features such as the following are to you:
- Size. Many first home buyers are attracted by large family homes that remind them of the homes they grew up in. However, large homes are expensive, and it’s important to consider how much space you will actually need – do you have (or are planning to have) a large family, or will the home only house one or two people? Are you willing to sacrifice house size in return for the smaller energy and maintenance bills associated with a smaller home?
- Outdoor space. For some people, a big backyard is a must. For others, a large lawn and leafy gardens are just another source of maintenance costs. Consider where you stand on outdoor space.
- Luxuries. Pools and spas look great at home opens, but consider whether they’ll be an unnecessary extra cost, or a part of your everyday lifestyle.
- Location. Proximity to good schools, parks, and shopping centres can often drive up the asking price of a home. Decide on which location is most suited to your lifestyle.
By deciding which costly features of a home aren’t important to you and buying according to those priorities, you’ll avoid the temptation of unnecessary features that will have you paying more. You’ll also save yourself a lot of time, because you’ll be able to narrow down your property search to fewer properties.
In summary, to find out how much you should spend on a house, get your home loan pre-approved. Then, determine which costly features are and aren’t important to you and decide how much you are willing to pay in loan repayments.
Image courtesy of 401k Calculator.