Three Considerations to Home Affordability

Australia’s real estate industry will be making home affordability a greater cause of concern, in an economic sense. The data on housing starts is anticipated to face a decline this year. This decline is attributed to state laws on the use of land, zoning policies, tax obligations for developers and other regulations that inhibit developments of new houses. With the expected contraction (or less supply), house prices will be pulled up on aggregate.

While the factors influencing affordability is primarily economic, it shouldn’t be the deciding factor to owning a home. Asking oneself how much mortgage can I afford is a good place to begin to know if homeownership would fit into the budget. It is fortunate that there are means to manage one’s personal finances and make the most out of the home buying opportunities.

1. Personal cash flow analysis

A house that costs 2 to 3 times the total household income is the standard used to tell if one can afford a house. However, this formula supposes that one allocates 100% of personal income for a house. That’s not exactly true because there are monthly obligations to fulfill such as utilities, gas, tuition, food and other personal cash expenditures. By doing a cash flow analysis, one is able to learn how much is left in excess of all the cash outflows that can be designated for the mortgage.

2. Downpayment and interest rates

The amount made for downpayment will determine how much the succeeding monthly payments will be. Fluctuating interest rates, on the other hand, will make the scheduled payments more unpredictable and riskier. Make sure these two things are taken into account because either of them can make the mortgage more expensive than can be borne.

3. Other debts

Credit card dues, auto loans, and other debts should be totaled on top of the mortgage to determine one’s total debt level that’s acceptable. Total debt should be at least 43% of gross annual income. The amount of leverage is used by lenders too as it helps determine one’s capacity to handle obligations when they come due.

Asking how much mortgage can I afford will no longer leave anyone in vain. A question on home affordability can be resolved. Achieving one’s financial and homeownership begins with considering all the variables – cash flow, downpayment, interest payments and other debts. By knowing the amount of mortgage that fits comfortably to one’s budget, it makes it easier to manage all other monthly payments and meet obligations.

Much more than a financial matter, homeownership builds up one’s self-assurance and provides peace of mind that leasing can’t provide. To afford a home can give a sense of fulfillment, security and comfort that can be relied on for many years to come.

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