Buying a home can be laborious, stressful and confusing. This is never truer than when you have to do it alone, without the extra emotional and financial support provided by a partner.
Then again, there are also great benefits to owning a home alone – it’s yours and yours alone, you can make independent decisions on whether to make extra repayments depending on changes to your income, you can decorate it exactly as you like and you don’t have to share the capital gains with anyone.
But first you have to buy it. The first hurdle is saving a deposit – most lenders require at least 5 percent down payment, but you’ll need at least 20 percent of the purchase price if you want to avoid the extra cost of lender’s mortgage insurance. And you’ll have to save the entire sum yourself. On one income, it may take twice as long.
Next, the amount you are able to borrow depends on your income. The higher your income, the more money you will be able to borrow – and your repayments will therefore be higher. In determining your borrowing limit, lenders use a debt-service ratio – the ratio of loan repayments to your gross income. As a guide for a single person on one income, most experts suggest spending no more than 35 percent on servicing a home loan to avoid mortgage stress.
Your borrowing capacity will also depend on the interest rate. When rates are higher, your borrowing capacity is lower. Right now, interest rates are relatively low so you will be able to borrow more.
While interest rates are on a downward course at the moment, you must be prepared for their eventual increase. Will you be able to afford your repayments at a higher interest rate? Borrowers are urged to factor in a 2 percent buffer, should rates rise in the future.
Whether you are buying alone or in partnership with someone, lenders will be interested in your job stability and financial situation. Are you employed full-time and how long have you been with your employer?
Once your home loan application is approved and you find a home you love within your borrowing limit, there are other considerations for which you must plan. Homes, whether apartments or free-standing houses, require ongoing maintenance.
Leaky roofs, cracks in the wall, a collapsed fence – such expenses can often be unexpected, but you should ensure you are able to cover them should they occur. Building maintenance for apartments and townhouses may be covered by strata levies, and you should factor in these quarterly repayments in your budget.
If you can afford it, now may be a good time to buy.