First things first! What's your borrowing power?
“How much can I borrow” is probably one of the first questions you’ve asked yourself, and there’s no simple answer to this question as it all comes down to your personal financial situation. Lenders will measure your ability to make loan repayments comfortably without putting you in financial hardship. This is called a debt-to-income ratio (DTI) or loan-to-income ratio (LTI).
You’ll also hear this term a lot – loan-to-value ratio (LVR). This describes the amount you need to borrow to buy a particular property. Generally, the lower the LVR the better, as a lower LVR carries less risk.
It also means you’ll have a head start on fully owning your home and have more equity from the get-go (equity is the market value of your property less how much you owe on it).
When your LVR is over 80%, the cost of getting a home loan may increase because you might need to pay for Lenders Mortgage Insurance (LMI). LMI protects the lender if you can’t keep up with your home loan repayments. Even though you’re paying for this insurance, it’s not protecting you. It only protects the lender. So generally, the higher your LVR, the more LMI will cost. But more on LMI coming up.