Can I afford a house? How much can I afford to spend on one?

Buying your first home is an exciting prospect, but before you start looking, it’s important to answer one fundamental question: How much can you afford to spend?

The answer will depend on a couple of factors, including the size of your deposit, your income and any other expenses you have. But that’s not where it ends – it can sometimes make sense to stay under the amount a lender will let you borrow. In other circumstances, spending a little extra now can help you save in the long run.

So how do you arrive at a budget that’s best for you?

The amount you can afford to spend on your first home will depend on your income and outgoings. Draw up a realistic budget that gives you an accurate and comprehensive idea of what both of those are.

Income includes remuneration from all sources, not just your wages or salary from an employer.

  • Salary
  • Government benefits
  • Share dividends
  • Rental income

Of course, your expenditure should also be as accurate as possible. You might know your regular payments like rent, bills and other fixed expenses, but variable costs can add up. Make sure you list all the areas where your budget spend is going, even the little things like streaming services or weekly beers with your workmates.

Hot tip: Download at least the last six months of bank statements and add up your spending. It might be an eye-opener!

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> Rent versus buy: When rent comes out on top
> First home owners guide: 5 tips to get started

It’s also worth including your debts too. Are you making credit card payments, paying off a car or a personal loan? These are all part of your expenditure. When you apply for a loan, a bank will want to know about every liability, so it’s best to list them now.

Once you’re done, your budget will tell you how much you have left over after paying expenses each month.

But how do you know if that’s enough? Homeowner costs aren’t the exact costs you incur as a tenant in Australia. Mortgage payment aside, you’ll also need to cover council rates, water rates and home maintenance costs. And don’t forget, if you’re buying into strata, you’ll also need to cover that expense.

Use the 30% rule to measure housing affordability

The 30% rule is a great place to start when you’re mapping out your saving strategy. It works as a buffer for your budget just in case interest rates rise.

If you have a larger than average income, or you happen to be a super frugal spender, you may have more than 50% of your income to spend on housing. But consider this: If your mortgage is more than 50% of your income to spend on housing, you could fall into mortgage stress. If interest rates rise, you won’t have a lot of room to cut back on other expenses to compensate.

Calculate 30% of your gross income every month to give you a better idea. The formula is:

Your annual income multiplied by 0.30 and divided by 12.

So If you earn $80,000 per year, 30% equates to $2,000/month as a monthly repayment.

So how does it work from here?

As a test run, try living on the amount you’ve budgeted after mortgage repayments for a couple of months. Set up a direct debit / automated payment for the amount of your proposed monthly payment. If you can survive on the remainder for a couple of months, it’s a good sign that you’ll be able to afford it. Bonus? You’ll be on your way to affording a home deposit.

Are you struggling to make ends meet? Don’t stress. What expenses could you cut? Look at subscriptions or discretionary spending. Could you negotiate on a better internet plan or insurance premium?

You might also like:
> How to save for a house deposit while renting
> How much does renting actually cost?
> The best money habits to have while renting an apartment

When does borrowing up to my maximum budget make sense?

There are times when this can work. Thanks to the cost of housing and stamp duty, buying is expensive. So whether you’re building or buying, you want to find a first home that’s suitable for at least the first five years and make sure there’s enough room for you (and your family) to grow.

If you’re expecting your income to go up, this could be a great safety buffer. So if you’re in line for a promotion and confident you may see a salary hike soon, it would be less risky to stretch your budget now.

Hot tip: Make sure you’re not overextending yourself, just in case your salary drops. If you’re planning to go back to study or start a new business, make sure you can still pay your new mortgage when they happen.

Buying your first home should be an exciting time, so make sure you’re comfortable with your budget so you can relax and enjoy the process. is Australia's largest company dedicated to renters and is owned and operated by ASX-listed Limited (RNT:ASX). For over 15 years, has exclusively focused on making renters' lives easier by making it easier to find a property, secure it, move in and pay rent.