Determining if you can afford a property and setting up your budget is arguably one of the most difficult elements to buying a property.
Get this wrong and you could find yourself in financial stress quite soon after buying your property.
Many people feel that over estimating here gives them a healthy buffer, which is true to some extent.
But it could also mean that the house they really would have loved was overlooked due to the price when they potentially could have afforded it.
Although the bank will look at your expenses as part of the review into whether you can service the loan, you need to have a solid understanding yourself of the expenses and the sources of income that will determine if you can afford to own the property.
Calculate your budget
There are many factors to think about in terms of the mortgage which should not be overlooked.
For instance, if the interest rate rises, can you still afford to make your mortgage repayments?
When calculating the mortgage component of your budget, be sure to consider fluctuations in the interest rate so you won’t get caught out.
Buying a property itself comes with many additional costs that aren’t always obvious upon first glance such as stamp duty, legal/ conveyancing fees, pre-purchase reports such as pest and building inspections and registration fees.
Once the property is yours you’re going to have range of other expenses to consider over and above your mortgage such as insurance, council rates and body corporate fees dependent on the type of property that you have purchased.
You’ll need to factor in your general expenses also like water bills, gas and electricity, which tend to come at very inconvenient times.
If the property you’ve purchased is being used as an investment, you’ll have extra fees to consider such as landlord insurance, property management fees and any advertising charges that you may incur in order to rent the property.
Of course an investment property also brings with it some added bonuses in terms of income sources (rent) and the ability to make some claims back in your taxes such as depreciation deductions.
If all this seems like a lot of information you must know and understand before you’re even able to go to the bank and ask for a loan – you’re right.
A few factors to consider…
There are several factors to consider when buying a property both before and after the purchase.
Using the property calculator PropCalc brings all of this together into one place. Once an address is typed in it generates a calculation using property and suburb-specific information to provide you with a weekly cost to own the property.
If you’re a little more across what all this data means, the calculator allows you to customise the results by including your own information.
This weekly cost is not only comprehensive but gives you a clear idea of the true cost involved in owning a property.
One thing is for sure – using PropCalc is going to give you a greater level of insight into the affordability of a property, specific to your own circumstances so you won’t get caught in financial stress down the track.
