Owning one’s own home is part of the great Australian dream. However, if you’re like many aspiring homeowners, saving for a deposit is likely proving to be challenging.
Fortunately, you can take advantage of a number of services, tools, and grants to ease your entry into the property market.
You can also save for your first home without making drastic changes to your lifestyle. Armed with a good savings plan and some discipline, you’ll soon have a deposit for your first home.
- Work out how much you can afford to borrow.
First things first: you need to work out how much you can afford to borrow based on your income and expenditures. To simplify the process, use the How Much Can I Borrow? Mortgage Calculator.
Determining how much you can afford to borrow requires an honest assessment of what you can safely repay over the length of your mortgage.
Coming up with a workable plan also requires you to be realistic. If your budget cannot accommodate your dream home, you may need to consider buying a smaller property, an older property, or a property in a different suburb.
Later down the road, as your financial situation improves and you’re able to build more wealth, you can climb further up the property ladder.
- Save at least 20% of the property’s purchase price.
Ideally, you’ll want to save at least 20% of the purchase price of the property you intend to buy. If your bank or lender is loaning you more than 80% of the purchase price, you’re more likely to be charged lenders mortgage insurance (LMI) or a low deposit premium.
LMI is one of the most popular ways to achieve the dream of homeownership for borrowers who don’t have the required deposit. It can be paid upfront or capitalised into the loan, which means payments are made over the life of the loan.
Keep in mind that there are other upfront costs associated with buying a home aside from the deposit that you need to be able to cover. These upfront costs include taxes and government fees, as well as insurance and legal fees.
- Create a workable savings plan.
Saving for the deposit and other upfront costs will require a workable savings plan. You’ll need to prepare a budget and stick to it. Avoid spending on non-essential items, extravagant holidays, and impulse purchases, as these types of expenses can delay your dream of homeownership.
You should also open a separate bank account (ideally a high-earning savings account) and set up an automatic transfer for every pay day so that part of your income is diverted automatically to your savings account. Consider making top-ups whenever possible.
- Look for assistance.
Depending on your circumstances, help may be available for you to reach your goal of saving for a deposit sooner.
Check to see if you’re eligible for the First Home Owner Grant (FHOG) scheme. Under this scheme, a one-off grant is payable to first-time home buyers that satisfy the eligibility criteria.
Finally, check if your parents or other family members may be willing and able to help you out with the deposit via a one-time financial gift or interest-free loan.
With interest rates at their lowest for more than 50 years, there are some great rates available. The best thing to do is to compare rates from all the lenders. Let us help take the leg work out of doing this - Compare Home Loans now