Saving up for a deposit to buy a home can be a daunting task, especially when you're just starting out. Property prices seem to continually rise, while the banks and APRA have done all that they can to tighten up the lending criteria and the amount required for a home loan deposit. But before you start to tighten your financial belt and begin cutting costs, here are some tips to help you to get a deposit together.
One of the hardest things to do in life is to save up enough money for a home loan deposit. For existing home owners and property investors, they have the advantage of being able to pull out equity as a deposit on their next property purchase. But for many first time buyers, they need to create a budget and work hard to put aside their hard earned cash towards their home deposit.
Whatever your situation, a deposit for a home loan is a leveraging tool that can help you to get you into the property market sooner, and for investors - to buy the highest value property with minimal debt and savings.
How much deposit do I need?
For many first home buyers, you need to save at least 5-10 per cent of the property's purchase price. These figures will vary if you're self-employed as lenders will have different lending criterias. However, it's always better to save more and pay the additional 20 per cent deposit in order to avoid paying additional charges and interests, such as Lenders Mortgage Insurance (LMI).
Based on where you want to live, and what property you want to live in, you should have an idea of the figure you will need to save up for, but if you don't, try using our How much can I borrow calculator to give you an idea of what you can afford to borrow.
What other costs are involved?
Don't forget the other fees that you will need to cough up, such as stamp duty, solicitors and conveyancing costs, building and pest inspection, home insurance and miscellaneous bank charges. Overall this cost can be anywhere from $6000 - $8000.
Money Saving Tips
- Live with your parents for a while - rent, strata fees and the associated bills that come with renting can easily set you back by several months or even years from reaching your savings goal. Some people who rent while saving up for a deposit often report on how difficult it is to save the initial deposit. As soon as they save enough for a deposit, property market prices up. Paying zero rent is the quickest way to help you to save up for a deposit.
- Delay having a family - while there's nothing wrong with couples wanting to start their own family, it's best left until when you've managed to buy your first property. Once you have a family, your cost of living will go up and you will have more financial commitments.
- Take a lump sum holiday payout - many workplace employers may offer lump sum payment options, which can be used to top-up your deposit money. Sometimes, you may have no choice but to take up a redundancy package, which can also be a blessing in disguise. Again, use this money to top-up your savings.
- Cut down on unnecessary expenses - have you thought about down-sizing your car, or even selling off that second vehicle? Perhaps you have several high interest credit cards that you can simplify and pay less interest on by taking out a debt consolidation loan. The less on-going expenses you have, the more you can save and the more you will be able to borrow.
- Apply for the First Home Owners Grant - the First Home Owners Grant was launched by the government to help eligible first home buyers to buy their first property. Different grants and criterias apply to different states, and to whether you are buying a new home or an established property.
- Use an Offset account - if you are a property investor, or you're thinking of up-sizing your home, consider putting your deposit savings into an offset account. AMO has a number of flexible products including the Future Proof Home Loan and the Revolution Home Loan which gives borrower’s flexible offsets accounts and the option to switch between fixed and variable rates. Investors should use an interest only loan with an offset account.
How do I start?
There's no shortcut, you have to create a strict budget and stick to it.
On the positive side, a strict budgeting goal is a guarantee that you will get a taste of what it's like to put yourself through the commitment of paying off a home loan. The timeframe may vary, but the more you save, the better off you will be. You will have a better deposit, and you will reduce the fees and the amount you will need to borrow.