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Buying A Home Doesn't Have To Be Scary:
A Home Budgeting Guide
If you find home loan repayments a daunting topic and find yourself wondering, "how am I going to do it"? Stop stressing right now. By following these simple steps you will be able to budget like a pro, without feeling limited by financial constraints.
Creating a budget is not the easiest of chores when it comes to money and how you use it. It involves "nitpicking" through your spending habits which for most of us, shows us things that we really don't want to see, however; this can be really eye-opening. Analysing how we spend our money also highlights areas where we could possibly cut back. This brings us to our first step ...
Step 1: Income & Expenses
You will need:
- 1 month of pay slips
- Bank statements
- 1 month of shopping receipts
- Calculator (unless you're a genius with numbers)
- Computer with internet connection
With all these trusty budgeting ingredients you are going to make your masterpiece budget!
The first thing you need to do is grab your month's worth of pay slips and work out how much you earned (after tax) that month. It can be any month, the more recent the better as it is the closest to your current situation. You can also use your bank statement to do this. With this gross income, make a heading in your notebook, "Income=$______".
Next follows the expenses. Often it is easier to segregate items into categories for example:
This segregation helps you pinpoint areas you can reduce spending later on.
Once you've written and calculated your monthly spend into categories, you will need to add everything up into one grand total of all your expenses. Don't feel too guilty, we all like to shop and spend money on things we want, this is a way of placing all the things we spend money in the open. With this new awareness, we can make the first steps to simplifying how we spend our money and putting together the foundations of a spending routine.
Step 2: Wants & Needs
As a home loan can cover a time period of an average of 10-30 years you don't want to have your finances restricted under lock and key for that entire period. It is a good idea to consider the things that you may want or need over that period. Perhaps your car needs major repairs or you need a new one, you might want to go on a holiday or study. These are all things you should try and account for.
Many people make the mistake of not catering for their needs and wants whilst repaying a loan, often buying a new car and then finding themselves in financial hardship, trying to pay off both a car and home loan. You want to live comfortably so this is definitely something to consider.
Step 3: What's Left?
With all your wants, needs and expenses added up you want to find out what you've got left.
Write in Bold:
Total Income (after tax) - Total Expenses = $___________
This is your grand total of what's left.
Step 4: Research & Home Loans
Here's a bit of fun, with this grand total of leftovers you can now actively start searching for a home loan and repayments to suit. This can be quite fun as you can visit different banks and use loan calculators, playing around with the sliders to work out one that suits you. Visit your bank's website to find this, but don't be afraid to look at other banks and companies as well. An excellent website to calculate repayments is on moneysmart.gov.au where you can calculate how much you want to borrow and the cost of repayments.
Step 5: Understanding Loan Basics
Principal & Interest Loan
A "principle and interest" loan is where your repayment amount is split into paying for both interest (cost of borrowing the loan) and principal (amount borrowed). Generally, a large portion of your monthly repayment will go towards paying off the interest on the loan to start off with, before then switching to the majority going towards the principle repayment.
This type of loan is where you pay only interest for a fixed period, after which you pay for your principle. This method, however; does incur higher repayment costs of your principle after you come out of the interest-only period.
Variable Rate Loan
A variable rate home loan relies on the interest rate market and the standard rate. Depending on the interest rate market, this rate can rise and fall. This is excellent for lenders when interest rates fall, however; can increase costs when the market rises.
Fixed Rate Loan
A fixed rate loan is where you choose an interest rate that is permanent across the life of your loan. This loan type is excellent for when market interest rates rise, however; you may miss out of savings when it falls.
Split Rate Loan
A split rate loan refers to a loan that is sectioned into two different portions on which you pay different interest rates. For example, you may choose to pay a variable rate, to begin with, then switch to a fixed rate.
Fees & Charges
Fees and charges refer to additional costs that your financial institution has for offering services to you over the course of your home loan. This can include things like entry and set up, exit fees, as well as annual fees, depending entirely on your bank.
Step 6: Off To The Bank
Once you've chosen the right loan for you, it off to the bank to request a loan, set down the deposit and take out the loan. This is often quite nerve-racking, the act of locking yourself into a loan and having to make repayment for the next 10-30 years, however; once you get into a habit of meeting the repayments, things do get easier.
Step 7: Keeping On Top
The key to keeping on top of your monthly repayments is not forgetting about them. Often when people forget about their loan repayments they often over spend their budget and find they are struggling to meet repayments. Stick to your budget and if you find you've saved a bit more than you normally would or got a pay rise, look at possibly making additional repayments to shorten the term of your home loan. Like any routine, it takes work to put it in place, but once it is established you often find it can make life so much easier and simpler.
It may seem like a long journey to owning your own home or expanding, however; the amazing feeling, of officially owning your own home, is well worth it. Something to celebrate about when you finally own your home outright.
If you're looking to own your own home or expand, we have over 50 granny flat, cabin and modular home designs on offer to find the right home for you.
Contact us today on (07) 3889 7385.
Read some of our other articles:
- 7 Reasons To Invest In A Granny Flat
- Why The National Shift to Prefabricated Housing?
- Buying/Building A New Home: How To Help Reduce The Stress
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