First Home Buyers Guide - How to Set a Budget for Your First Home

Buying your first home is an exciting milestone, but it can also feel overwhelming, especially when it comes to setting a budget. Knowing how much you can afford is crucial to ensuring that your first step onto the property ladder is a financially sound one. Here’s a straightforward guide to help you set a realistic budget for your first home.

1. Assess Your Financial Situation

The first step in setting a budget is understanding your current financial position. Start by calculating your total income, including your salary and any other regular income sources. Next, list your monthly expenses, such as rent, utilities, groceries, transport, and other essential costs. Don’t forget to include any debts, such as student loans or credit card repayments.
Once you have a clear picture of your income and expenses, determine how much you can realistically save each month. This amount will give you an idea of what you can afford to pay towards a mortgage without stretching your finances too thin.

2. Save for a Deposit

Saving for a deposit is one of the most important aspects of buying a home. In NZ, most lenders require a deposit of at least 10-20% of the property’s purchase price. The larger your deposit, the better your mortgage terms are likely to be, which can save you money in the long run.
Set a savings goal based on the type of property you want to buy and the amount you need for a deposit. Think about opening a dedicated savings account to keep your deposit separate from your everyday expenses. Automate your savings by setting up a regular transfer to this account each payday.

3. Understand Additional Costs

Buying a home involves more than just the purchase price. Be sure to factor in additional costs, such as legal fees, building inspections, valuation reports, and moving expenses. You may also need to pay for loan application fees, mortgage insurance, and council rates.
It's wise to budget for these extra costs early on, so you're not caught off guard. A good rule of thumb is to set aside around 5-7% of the property’s purchase price to cover these expenses.

4. Get Pre-Approved for a Mortgage

Before you start house hunting, it’s a good idea to get pre-approved for a mortgage. A pre-approval gives you a clear understanding of how much a lender is willing to offer you, which helps you set a realistic budget. It also shows sellers that you are a serious buyer, which can give you an edge in negotiations.
Speak with a mortgage broker or lender to discuss your options and find out how much you can borrow based on your income, expenses, and deposit. Remember, just because you’re approved for a certain amount doesn’t mean you have to borrow the full amount. Stick to a mortgage amount that you feel comfortable repaying.

5. Factor in Mortgage Repayments

Your mortgage repayment will likely be your largest monthly expense once you buy a home. Use a mortgage calculator to estimate your monthly repayments based on different loan amounts, interest rates, and terms. Make sure your mortgage repayments fit comfortably within your budget, allowing room for other expenses and savings. It’s important to leave a buffer for unexpected costs or interest rate increases.

6. Plan for the Future

When setting your budget, consider your long-term financial goals and potential changes in your circumstances. Think about how future life events, such as starting a family, changing jobs, or dealing with emergencies, could impact your budget. Planning ahead can help you choose a mortgage and property that fits not only your current needs but also your future aspirations.

Setting a budget is a crucial step in the home-buying process. By carefully assessing your financial situation, saving for a deposit, understanding additional costs, and planning for the future, you can establish a realistic budget that makes homeownership achievable and sustainable. At SM Property, we’re here to help you navigate the property market and make informed decisions. Contact us today to start your journey towards owning your first home.