How to set a budget for your first home: A beginner’s guide

As a first-time home buyer, it can be overwhelming trying to work out your house budget and how much you can afford to spend. So, to help you navigate this tricky process, we’ve pulled together a few tips to help you with your first home budgeting.

How much do I need to buy a house?

If you're a first-time buyer, there’s a good chance you’ve wondered, ‘Exactly how much can I spend on a house?’ Unless you’ve got enough savings to buy a new home with cash, you’ll need to take out a home loan with a bank or lender.

Most first-time home buyers are familiar with the concept of a deposit. As a general rule, most banks and lenders like to see a deposit of at least 20% of the purchase price. Otherwise, you could be hit with lenders mortgage insurance (LMI) or a low deposit premium (LDP) to help offset the additional risk to the lender.  

That said, you might not be aware of some of the other upfront costs that come with buying a home. From stamp duty and building and pest inspections to conveyancing fees and mortgage registration costs, you’ll need to account for all these extra charges in addition to your house deposit

All these extra costs can set you back thousands, if not tens of thousands, on top of your deposit, so it’s essential to do your research to make sure you’ve got enough cash in the kitty to buy a house.

How much should I spend on a budget?

When it comes to working out your budget, it often helps to work backward by starting with how much you’ll need to cover your deposit as well as all those extra upfront costs. Follow these steps to help you work out how much to save towards your budget.

Step 1. Work out your borrowing power

First things first, you’ll need to figure out how much you can borrow for a property based on your current financial situation. You can work with a mortgage broker or go directly to your bank or lender to determine your borrowing power. They’ll review your financial situation, including your income, expenses, debts, liabilities, and credit history to see where you stand. This will give you a good idea of what you can afford and how much you’ll need to save toward your deposit. 

Alternatively, you can use a borrowing power calculator to figure out how much you can borrow. 

Step 2. Understand your income and expenses

While you would have provided details of your income and expenses to get an idea of your borrowing power, it can be worth spending some time reviewing your own figures to understand how much you have coming in and going out of your bank accounts. Make sure you’re honest with yourself. If you try to fudge the figures, there’s a good chance it will come out later down the track and you could risk getting knocked back for a mortgage.  

From here, you’ll be better positioned to create a realistic budget.

Step 3. Start budgeting

Now for the fun part, budgeting. Ok, budgeting might not be everyone’s idea of fun, but it could lead to a huge payoff if you’re keen to buy your first home.

Once you’ve assessed your income and expenses, it’s time to drill down to figure out where you’re doing well with your money and where you could be doing better. When it comes to budgeting, the goal is to maximise your savings and minimise your expenses. Take a good look at your spending habits and pinpoint specific expenses that you can cut down on or cut out completely. Some of these expenses may seem insignificant, but they can quickly add up. From eating out and subscription services to public transport and entertainment, there’s a good chance you’ll be able to find some areas to save on.

But remember, just because you’re in budgeting mode doesn’t mean you have to miss out on everything. You should still include the things that bring you joy in your budget, it’s just important to be mindful of your spending habits.

Depending on your pay cycle, you might want to set a weekly, fortnightly, or monthly budget to make sure you’re covering your necessary expenses while saving cash for your home deposit.

Step 4. Manage your debt

Do you have a credit card, personal loan or car loan? As part of your budget, you might decide to set aside a bit of cash to help pay down some of your existing debt. When it comes time to apply for a home loan, your lender will consider your debts when assessing your loan application. Ultimately, the more debt you have the less you’ll be able to borrow, so it could be worth spending a bit of time paying off your debt before buying a home. 

Step 5. Set realistic goals

While it’s essential to have an end goal for your budget, it can help to break down your overarching goal into smaller, more manageable goals. Saving for a home deposit takes time and commitment. Setting realistic goals can help you stay on track with your saving objectives, which can help keep you motivated throughout the time it takes you to save a house deposit. If you set overly ambitious goals, they’ll be more challenging to achieve, which could make you feel unmotivated if you fail to accomplish your goals. 

At Unloan, we understand how daunting it can be as a first-time home buyer, which is why we’ve created a range of resources just for you in our Learn Hub. From navigating the home-buying process to learning about home loans, we’ve got you covered with our collection of tips, articles and clips.

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This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.