In a recent newspaper article, a young woman was bemoaning the fact that at the start of the year she had an approval for a 95% loan to buy a property priced around $400,000. But now that a larger deposit is required by the banks - she can’t afford to buy the home she wanted.She went on to say that she didn’t have that much saved and now would need to save more or scale back what she buys.

In this case, the young woman wanted something she couldn’t afford and was honest enough to admit she hadn’t saved much. And there’s the problem!

The Australian government’s First Home Owners Scheme is helping young people get their first home and that’s commendable. So when the government is kind enough to give you $14,000 you don’t need much savings if your bank will lend you 95%!

Do the maths - on a $400,000 purchase you would only need to come up with $6,000 if you get the First Home Owners Grant. (plus, you may also need to pay stamp duty)

In this day and age that’s not a lot to have saved. Say it was saved over 10 years of a young person’s first years of working, that’s only $600 a year.

But wait, what are the repayments on a $380,000 loan? It’s around $28,000 a year over 25 years. So if you only saved $600 a year it’s not hard to see that you’re going to have a little bit of trouble servicing 45 times that much…..for the next 25 years!

Some years ago banks wanted their customers to have a ‘decent’ deposit, anything up to 25% was normal. The banks believed that demonstrated the saving capacity of the borrower which in turn would translate into their repayment capacity.

That’s a pretty fair assumption, because if you can budget to save you can also budget to repay. But if you haven’t saved, well you may have some difficulty.

Of course these figures are history now. The reality is harder as most lenders will only lend up to 90% of the purchase price.

Whether you’re a first, second, third or fourth home buyer – if you don’t have a budget how can you afford to repay your home loan?