Buying an affordable home

WITH house prices rising, it’s easy to get carried away and spend more than you can afford.

But borrowing to your limit – maxing out the mortgage – comes at a cost.

Here are six things you can do to stop your home becoming a burden, says NAB.

Set a reasonable – and realistic – budget

A decent borrowing power calculator will give you a good idea of how much you may be able to borrow.

The next question, perhaps the most important one, is not how much you can borrow, but how much you should borrow? Here, you need to take a hard-nosed look at your finances and prepare a realistic budget.

This should not be a ‘best case scenario’ —one that optimistically estimates your likely future income.

Another mistake is to devise an ‘austerity budget’.

While buying a house will involve some sacrifice, it’s important to live life.

You don’t want to become a slave to your mortgage.

Buy the ‘right-sized’ house

The average size of a new house in Australia is 243sq m.

Our houses are the biggest in the world. Forty per cent bigger than in 1985, despite the fact average family sizes are shrinking. Ask yourself if you really need that second garage; that third bathroom; that fourth toilet.

Expect interest rates to go up one day

Interest rates on the average mortgage in Australia are lower than at any time since the late 1960s.

But it’s unlikely they’ll stay this way forever.

Perhaps. Factor it into your calculations just in case. You want some wriggle room.

Save a buffer to shield you from tough times

It’s Budgeting 101: keep money in reserve in case your circumstances change.

Having a buffer equal to three month’s outgoings is a good target to aim at.

Houses cost more than just the sale price

In addition to your deposit — which might be 20% of the purchase price — you’ll need several thousand dollars to cover the associated costs of buying (and running) a home.