It’s 3AM and I Can’t Sleep

Hi Scott

It’s 3AM and I can’t sleep. I am looking at buying my first home and stressing about how much I can afford. I am single, earn $70,000 a year, and have a deposit of $175,000 (unexpected windfall mainly). The bank has approved me for a $340,000 loan. I have done the sums and it is pretty tight. Everyone says I am being too anxious, considering I also plan to rent a room out. Am I getting in over my head?

Sarah

Hi Sarah,

Here are three Barefoot rules that will serve you well.

First, always borrow less than the bank will lend you.

Second, do not spend your entire windfall on a home. Leave some aside for Mojo. Trust me on this. Homes are expensive.

Third, if you’re lying awake at 3AM and thinking of me, things aren’t right. You need to trust your gut.I’ve done the sums too, and it is a little tight even if you rent out a room.

Generally, I don’t like people devoting more than 30 per cent of their income to debt.I’m even more of a stickler for this given that interest rates are at all-time lows. Remember you’re taking on a 30-year commitment. Interest rates will rise.

So head over to Moneysmart.gov.au and check out their mortgage repayment calculator. Factor in higher interest rates -- say 6 or 7 per cent -- and redo your sums.

Scott