You’ve finalised what type of property you would like to buy and how much the deposit will cost you, so now it’s about how to get there. Setting aside a fixed amount of money each pay cheque can be difficult if you’re already renting, and tending to other living expenses, such as fuel, insurance, credit card repayments, the weekly grocery list and some of those sneaky wants that nudge you along the way.
But it is possible to think outside the box, take a few extra measures, and finally be settled into your first house? There are some things to think about first.
Borrowing more than 80% of your total property’s value or having less than 20% deposit saved may require you to pay lender’s mortgage insurance (LMI), which protects the banks in the case that you can’t continue making repayments on the loan.
Further to this, there are other expenses to also factor in when saving for a deposit on a first home such as additional stamp duty, legal fees, building and surveyor inspections, removalists and any immediate upgrades needing to be done to the property. Ongoing expenses, on the other hand, would entail electricity and water bills, strata costs if buying into a unit, council fees, and home and contents insurance.
That being said, here are 7 tips that can help you save for a deposit.
- Save first
Rather than waiting for your expenses to dig into your pay cheque, and then taking the ‘leftover’ toward your deposit at the end of the month, switch it around.
By immediately transferring a set amount as soon as your pay hits your account – say, 10% of your wage – you are more likely to stick to the savings plan. A good way to go about this is to get your bank to set up an automatic transfer.
Although it may mean further stretching what is left of your pay, it encourages you to spend only on what you need, rather than having available expenditure to make impulse purchases.
- Put everything under the lens
The only way to know how much money you can put aside each pay cheque is to study the money going out and note down all your expenses. The most effective, although considered tedious, is to gather receipts and excel-note all your expenses over a month or two, meaning you can easily pick-up on any detrimental spending patterns or unnecessary purchases.
You can also decide on possible sacrifices, such as not purchasing new clothing for a while, or swapping your gym membership for the outdoors, or cutting back on that reached-for muesli that costs three times more than the others on the shelf.
- Downgrade your car
Selling your car can immediately put thousands toward your deposit. So – whether you have two or have a newer model that you are willing to swap for a car that costs less – then you can really see results here.
- Spring clean
Whether you do it now, or when you’re about to move, it won’t make a difference – but getting rid of your unwanted belongings and furniture by the means of selling them online can put a bundle towards your deposit. It also allows for a clean slate.
- Move out
Temporarily moving into a cheaper rental, albeit pokey and inconvenient for a little while, can help you put an extra $100 - $200 a week towards your deposit.
Another option is, if your parents haven’t renovated your old bedroom into a spa, moving back home – or if that’s out of the question, you may consider living in a share house as these are even more affordable (if you don’t mind others around for a little while). And who knows? You might meet someone likeminded.
- Team with someone
Do you know of a family member or close friend who would also like to enter into the property market? Saving for a deposit on your own can be challenging, that’s why teaming with someone you can trust as a business partner is considered a less strenuous way to go about it, as it cuts the deposit amount straight down the middle.
Each party involved in a property joint venture equally shares the financial responsibilities tied into the project, including the deposit. However, there are many important considerations to take into account if inclined to steer down this avenue, such as equal sharing of the losses also, so be sure to gain professional advice before entering into a joint venture.
- Wipe away existing debts
Existing debt can severely get in the way of saving for a deposit. In addition, having a debt or being behind on repayments can jeopardise you being approved for a mortgage loan by the bank. Focus on eliminating these, as doing so will provide you with the extra income needed to save.
In the case of multiple credit card debts, these can be strategically tended to by aiming to pay off the card with the lowest debt first, or the one with the highest interest rate.
Saving for your first home deposit can take some time but mixing in some self-discipline and being able to sacrifice a few luxuries can really help you get ahead.