I've saved up money together with my partner for about 8 years now, I think we have enough cash in place to try and buy a house a proper house.
The online how much we can afford calculators are usually pretty rubbish so I've been doing some research to see how much a bank's willing to lend me.
So here are the steps,
Work out how much our family spends per month, be as accurate as possible.
Then work out the costs involved in buying a house including stamp duty and various fees.
Let H = house price that you want to purchase. Get a reasonable rate estimate from banks e.g. 2.95% for PI try to get as low rate as possible. If u r a good borrow u might be able to get below 2.95%.
Then tally up your income. And just go "left over" = Income - Expense. Make sure NOT to include rent in your expensive, since once you buy you can move in and don't have to pay rent anymore. Make sure to include in your expenses like council rates, water etc that you normally don't pay if you are renting.
Let loan size = H - cash - stamp duty - other fees
In Excel, do =pv((rate+3%)/12, 1230, left over)). Notice that I have assumed a 30 year loan her so if you want a 28 year loan then replace 1230 with 12*28. Also, I think banks are required to assess your borrowing capacity by checking if you can still afford the loan if interest rate go up by 3%, hence why there's a 3% in my equation.
The above will give you your maximum loan size so you can recover H from this formula
Let loan size = H - cash - stamp duty - other fees.
Whatever value comes out, should be the maximum house price you can afford. Just adjust accordingly for some conservatism.
Is this the right way to approach this?
The online how much we can afford calculators are usually pretty rubbish so I've been doing some research to see how much a bank's willing to lend me.
So here are the steps,
Work out how much our family spends per month, be as accurate as possible.
Then work out the costs involved in buying a house including stamp duty and various fees.
Let H = house price that you want to purchase. Get a reasonable rate estimate from banks e.g. 2.95% for PI try to get as low rate as possible. If u r a good borrow u might be able to get below 2.95%.
Then tally up your income. And just go "left over" = Income - Expense. Make sure NOT to include rent in your expensive, since once you buy you can move in and don't have to pay rent anymore. Make sure to include in your expenses like council rates, water etc that you normally don't pay if you are renting.
Let loan size = H - cash - stamp duty - other fees
In Excel, do =pv((rate+3%)/12, 1230, left over)). Notice that I have assumed a 30 year loan her so if you want a 28 year loan then replace 1230 with 12*28. Also, I think banks are required to assess your borrowing capacity by checking if you can still afford the loan if interest rate go up by 3%, hence why there's a 3% in my equation.
The above will give you your maximum loan size so you can recover H from this formula
Let loan size = H - cash - stamp duty - other fees.
Whatever value comes out, should be the maximum house price you can afford. Just adjust accordingly for some conservatism.
Is this the right way to approach this?