3 easy steps that pave the way to home ownership

Take lunch to work, sacrifice your mid-morning coffee, cut your Netflix subscription and rethink how much you spend on clothes, holidays and socialising … this is often the well-worn advice shared with potential home buyers saving for a first property.

But there’s more you can do to make buying a home a reality – and it doesn’t always involve squirrelling away every dollar. Good saving habits and a budget are important, but there are other steps on the home-buying journey.

Understand your true borrowing capacity

“Buying a home can be one of the most exciting and daunting things you’ll do, and the number one rule is understanding your true borrowing capacity,” says Pepper Money chief executive Mario Rehayem. “That means looking beyond the numbers to figure out what’s affordable for you – not just on paper, but in real life.”

Borrowing capacity is based on four key factors: income, liabilities or existing debt, expenses, and how you manage your money. But it can vary according to the type of lender. 

“One lender might be willing to loan you $400,000 while another will let you borrow $480,000 – even though your circumstances are the same,” says Ben Kingsley, a licensed mortgage broker and co-author of How to Retire on $3000 a Week. 

“Some lenders work on a debt-to-income ratio, while others use different inputs and tolerances. For example, they may treat your car loan differently or take into account income from bonuses or allowances that are part of your role. Shop around and you might be surprised at how much you can actually borrow, while always remembering that you have to repay the loan.”

Have realistic expectations – start smaller

Your first home is just that – it’s your starting point and not your forever home, because saving for a 20 per cent deposit on your dream home isn’t practical if property prices keep rising. With the average property price in Sydney sitting at around $1.7 million, saving $340,000 while also still having to pay rent and bills is a big ask.

“The goal should be to enter the market and start building equity,” Rehayem says. “Once you’re on the ladder, doors begin to open.”

He adds that, for some buyers, “rentvesting” – buying in a more affordable area while continuing to rent where you want to live – can be a smart and practical move.

“Do your market research and make decisions based on your longer-term goals,” Rehayem says. “What matters most is starting with a clear understanding of your goals and taking a step that’s right for now.”

Kingsley recommends looking at an older, established property in need of some TLC and freshening it up over three or four years. A tidy garden, fresh paint and polished floorboards make a cosmetic difference and add value.

“That property then creates equity and you can sell it, realise that gain and use it to move to the next rung in the property ladder,” he says. “Rinse and repeat, and, over 10 to 15 years, you may move two or three times until you end up with a property in your dream location.”

Explore your loan options

The big four banks aren’t the only lenders in the property market. Credit unions and smaller lenders can be more conservative regarding how much they’re willing to let you borrow, but non-bank lenders often have a slightly higher risk tolerance, which helps renters become home owners sooner.

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“No two lenders are the same, and that can work in your favour,” Rehayem says. 

“Non-bank lenders often have different criteria and more flexible policies. One in three of Pepper Money’s customers is self-employed, while others have non-standard income or need tailored lending options. 

“Our focus is on possibility and really helpful loans, because everyone deserves a fair shot at home ownership. Understanding your loan options can make a big difference in buying a home now, or sitting back and waiting.”