Saving for a House Deposit

Owning your own home is the great Australian dream, yet for many these days that’s exactly what it can feel like – a dream. But no matter where you are in Australia, buying a home is achievable with the right guidance. An important starting point is to develop a deposit savings plan you can comfortably live with.

Here’s a few points on what’s involved.

1. Set a budget

First, take stock of your current financial situation and spending habits. Gather information on what you’re currently spending to see where your money is going.

Drawing up a budget will help you understand how much you can realistically save each pay day. Then make it happen by organising an automatic transfer of funds out of your everyday account and into a dedicated savings account.

TIP: Be aware of a savings account that only pays high interest for a limited period, after which the interest rate can drop significantly

2. Scaling back

Every dollar counts when you’re saving for a property deposit and some changes to your usual spending habits will make a bigger difference than others. Scaling back your daily coffees, subscriptions or takeaway can be great start, but moving back home for a short while (if you can) is likely to make a much bigger difference to your bottom line.

TIP: If you can, save a similar amount to what you expect your home loan repayment to be.

3. Lump sum deposits

It’s likely that throughout each year you’ll receive lump sums of cash such as a tax refund, an annual work bonus and even gifts of cash for birthdays and other special occasions.

Adding these amounts to your first home deposit doesn’t just give your savings a valuable boost, it can keep you motivated to reach your savings goal.

4. How much deposit do I need?

Ideally, you’ll want to save as much as you can for a deposit.  This will mean you don’t need to borrow as much and the less you’ll pay in interest.

Most home buyers aim to have a deposit that covers 20% of the purchase price of their property, plus the upfront costs.

If you have less than 20% deposit, you might be able to get into the market sooner by taking out lender’s mortgage insurance (LMI) or having a guarantor. These options may have additional costs or risks involved, but can allow you to get into the property market now.

TIP: In a rising property market, by the time many purchasers save the 20% deposit required for a property, the market has risen and the “new 20%” required is now much more.

5. Look for helping hands

Depending on your circumstances, help may be available for you to reach your house deposit goal sooner.

The First Home Owners Grant is a state government scheme in which eligible home buyers receive a one-off grant.

Consider whether your parents or other family members may be willing and able to help you out with a one-off financial gift or a guarantee. Guarantees can take a number of forms but typically involve using the equity in a home or investment property so you can avoid LMI and purchase a property with a smaller deposit.

6. Get on top of your debts

It can feel hard to think about long-term saving if you’re struggling just to keep on top of the debts you already have.

Consolidating your debts can be a smart way to stop multiple payment dates and interest rates. Your repayments can decrease and the fewer debts you have, the more likely the banks may look favourably on you when the time comes to submitting your home loan application.

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