Photo © 2008 AAP Image/Melanie Foster

In the last ten years the Government and banks have practically pelted potential home owners with big bucks, often leading people to purchase their first home beyond their budget. That way lies disaster as unfortunate as Donald Trump’s ’do.

Around 500,000 households are in some form of mortgage stress. They’re worried about making ends meet until payday: no unnecessary driving, eliminating things they previously considered necessities such as phones, and tracking the smallest of expenses to cut corners even more closely.

If the Great Aussie Dream exists, these people have entered the dark, foreboding nightmare phase.

Rent and housing prices boil down to one thing: affordability.

Plenty of people are choosing to rent to avoid the haunted housing market. And although interest rates still sit at historically low levels, as they rise — and make no mistake, they will — more will join the ranks of renters.

As a homeowner, I know the first rule of wealth management says you spend your working life paying off a long-term asset. For most, that’s a mortgage. If you’re in the market for a mortgage, here’s what you need to know:

- Secure, at minimum, a 20 per cent deposit. If you pay down any less, you’ll likely struggle.

- Cap your repayments at 30 per cent of your annual net wage. Any more than that and you won’t have a safety net when the inevitable rise in rates hits hardest.

- The smart money says the banks are biding their time, planning to hike interest rates after the election saga ends.

However, if you're already feeling the pinch, visit your bank’s hardship department. All the major institutions have them, and they can help you address your specific situation if you contact them early enough.

Click here to watch Scott talk about this topic on The 7PM Project.

More of Scott Pape’s articles on personal finance can be found on his website, http://www.barefootinvestor.com/.