Buying your next home: What can you afford?

Planning to buy your next home? Learn how to confidently calculate what you can afford, covering equity, borrowing power, repayments and things to consider to guide your next move.

As you’re getting ready to buy your next home, it’s important to recognise that your financial situation may have evolved since your first home buying experience. Factors such as a:

  • Larger family
  • Increased income
  • Other investments

… will help determine how much you can afford to spend on a new home.

You’re also likely to have built equity in your current home either due to:

  • Additional mortgage repayments you’ve made or
  • An increase in the value of your property

To determine your borrowing capacity for your next home, here are three factors to consider.

Income

This is the most important factor in determining how much you can borrow on your home loan. Use our calculators to provide an estimate of what your repayments will be once you start making mortgage repayments on your new loan.

If you’re applying with Unloan, here are the documents you’ll need to provide for us to verify your income.

Equity

You can use the value of your current home that you currently own, known as equity, to help with the purchase of your next home. This involves converting the equity into cash to be used as a direct deposit for your new home.

How much equity you have in your home loan affects how much you can borrow for your next home. It’s important to note that if you’re borrowing more than 80% of the new home’s value, lender’s mortgage insurance (LMI) or a Low Deposit Premium (LDP) may apply, depending on the circumstances of your loan. These are both one-off, non-refundable costs that are added to the loan amount.

Repayment history

Your history of mortgage repayments and other debts are also taken into consideration when you apply for a home loan. Consolidating and clearing off other debts can be beneficial, as it allows you to focus on making additional repayments on your mortgage, which may in turn increase the equity in your current home.

By understanding these factors, this can help you decide if buying your next home is feasible with your finances.

Related articles

Reasons why your home loan application may be declined
How to calculate loan to value ratio (LVR)
How much deposit will I need to buy a house?

Calculations are not a loan approval. Applications are subject to credit approval, satisfactory security and minimum deposit requirements. Full terms and conditions will be set out in our loan offer, if an offer is made.

^Rates shown are inclusive of a 0.01% p.a. discount off our reference rate. On each anniversary of your loan’s settlement date, you will receive an additional discount of 0.01% per annum, up to a maximum discount of 0.30% per annum. For purchase loans with a Loan to Value Ratio (LVR) between 80.01% - 90% LVR, a lenders mortgage insurance (LMI) premium and higher interest rate apply. In some cases depending on the property’s location or type, LMI may also be required for LVR between 70.01% and 80%.

*Comparison rate is calculated on a $150,000 secured loan over a 25 year term. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.