Establishing a Budget for Property Purchase
Your home-buying budget: take a closer look at what to consider
Buying a home is one of the most significant financial decisions you will make in life. As with any big decision, you must have the right tools to help you make the best choice. A budget is one of the most powerful tools in your financial shed. A clear budget can help you set your goals and stay on track to achieve them. Here's an expert guide to setting up your home-buying budget.
Thorough preparation leads to better outcomes – start planning today for tomorrow’s dream home!
Homeownership should align with your broader financial goals. Whether it's saving for retirement, investing in education or planning family growth, consider how these objectives fit into your overall financial plan. Most importantly, seek invaluable advice from financial advisors or mortgage brokers. These experts offer personalized guidance tailored to the New Zealand property landscape and can help you structure a budget that suits both your current financial standpoint and future aspirations. Mortgage Advisers will traditionally not only work out if you can afford to finance a home at the current rates, but also at the higher rates of 7-9% interest under their stress testing. They must act within your best interests, and must explain why they have made the recommendations they have. Then first step is to see where you stand right now - assess your current financial situation. This involves reviewing your income, savings, expenditures and existing debts. These figures will build a foundation for how much you can afford to spend on a property without overextending yourself financially. Having them on hand is also necessary for the next step. Securing loan pre-approval from a bank or other financial institution is an essential part of the budgeting process. Pre-approval gives you a clear idea of how much the bank is willing to lend you based on your financial circumstances and credit history. Pre-approval also puts you in a stronger position when making an offer on a house, as sellers will see you as a serious buyer. I Having pre approval means you aren’t wasting time looking at homes that are outside of your budget, and spending money on offers/due diligence when you won’t get finance approved as a condition. It is vital to account for additional costs beyond the purchase price of your home. These may include legal fees, building inspection costs, loan application fees, insurance premiums, moving costs and any immediate home improvement costs. Do not overlook these when creating your budget. In New Zealand, buyers typically provide a deposit of at least 20% of the property's purchase price. There are options for those with smaller deposits through various government schemes and lending criteria that might allow for less - research what's available to you as they may have a big impact on your budget. Owning a home comes with ongoing costs that must be considered when establishing your budget. Rates, insurance premiums, maintenance costs and body corporate fees (if purchasing an apartment or townhouse) are recurring expenses that will impact long-term affordability. With all this information you can determine your price range. Take the maximum loan amount you qualify for plus any savings intended for the deposit, then minus additional upfront and ongoing costs associated with purchasing and owning a home. Life is unpredictable and it is always wise to include an emergency buffer within your budget. This will allow a little extra wiggle room for unexpected expenses or changes in circumstances without jeopardising your homeownership dreams. Your lifestyle should not suffer because you chose to buy a home. Work your daily living expenses into your budget, allowing for leisure activities. Striking a balance is key to enjoying life while settling into your new home.
