Since 1947, the proportion of Australian households who own their home outright (that is, minus a mortgage) has been anything but stable. Based on data from the Australian Bureau of Statistics, the rate of outright home ownership fell from 45 per cent in 1947 to 32 per cent in 1976, rising to 43 per cent in 1996 before falling again to 35 per cent in 2006.

Attitudes about how to buy a home have fluctuated as much as interest rates during the decades since World War II, and eventually many first-time homebuyers were encouraged to "buy big", in order to stretch their budgets as much as possible, and buy the home they wanted to live in forever. Given the fluctuating property market, today's buyers are more wary of taking on a home they cannot afford, but many are still tempted to make their first home purchase their dream home rather than their starter home.

Jim Gillespie, president and CEO of a banking firm in the U.S. claims that, in the past, first-time homebuyers in America were willing to purchase older, more basic houses in an effort to save money and break into homeownership. The same can be said about first-time homebuyers in Australia.

"It is important for first-time homebuyers to remember that by considering a fixer-upper for their first home purchase, they can build equity over time and later move up and into their second-stage home that better reflects their expectations," claims Gillespie.

The Economy and Your Home

Personal finance writer Liz Pulliam Weston describes four economic changes that should discourage buyers from overspending on their house payment:

1. Inflation

Rising prices, while hard on the household budget, usually came along with substantial annual raises. These days, homebuyers cannot count on a significant raise to make their housing payments easier to handle.

2. Two-Income Couples

Weston says that when more families had a single wage earner, the other spouse could go to work to pay for the house if they were in financial trouble. Today, most households have two workers and that double-income is needed to make the mortgage payment. Consider trying to base your budget on one income or perhaps one and one-half an income to make sure your housing payment will still be affordable if one spouse stops working.

3. Lenders

Thirty years ago, it was very difficult to qualify for a loan for more than was easily affordable, but as lending practices changed, mortgages qualifications became looser. Standards have tightened today, but lenders will always give borrowers the maximum amount they qualify for - not necessarily what they should spend.

4. Retirement

Thirty years ago and more, most people had their retirement covered and could count on the aged pension. Today, retirement savings are more typically individually funded in super plans that come directly from your budget.

Each of these changes suggests that today's homebuyers should be shrinking their housing budget rather than expanding it, making sure that they can comfortably keep up with their payments, pay down their principal and build equity in their property.

Calculating Your Housing Budget

Lenders will qualify you for a loan based on your credit rating, debt-to-income ratio, income and assets and your employment history. But each potential buyer should do their own calculation to determine their comfort level with a budget. Remember, a lot depends on your other debts and anticipated income and expenses.

Make sure to budget about 1% to 3% of the home value for future repairs and maintenance, since those costs can quickly derail your budget.

Most homeowners should plan to stay in their home for five to seven years, so consider what may change in those years. If you plan to have children and may want to have one parent work less, your income could drop. If you enjoy golf or travel or skiing, you need to factor that into your budget or decide if you are willing to reduce your spending in that area. If you work on commission or overtime or as a freelancer, make sure you base your budget on a low-end year rather than a high-earning year in case your income drops. On the other hand, you can consider increasing your housing spending if your retirement is fully funded, you are debt-free and you anticipate a guaranteed increase in income.

The Bottom Line

While no one can predict with accuracy whether or by how much home values will increase in future years, purchasing a home you can afford and building equity by paying down the principal are the surest ways to start climbing the property ladder.