Buying a first home is a life goal for millions of Australians, with the first step on the path to home ownership being to save up enough money for the deposit.
Buying a first home is even more attractive right now with interest rates at record lows, making it a great time for first home buyers to consider entering the property market.
A typical house deposit can be up to 20 per cent of the property price, meaning that saving for it often takes years to achieve and at first may seem a daunting task. This is especially the case in Australia where the average price of a residential home is now over $720,000.
However, there’s no need to be deterred as there are many simple ways to speed up the process and get you on the road to owning your first home as fast as possible.
Stick to a budget
A major key to saving for a house deposit is to go about it systematically. This is where sticking to a budget helps as you’ll likely have to build your deposit bit-by-bit over time.
With a budget, you can see what money is going in and out each month and where you can cut back. You can then determine how much you can afford to save regularly for a deposit.
Remember, if you’re serious about accelerating your saving, you must be prepared to give up spending on some inessential things to achieve your goal of home ownership faster.
Figure out your deposit size
When it comes to how much you need to save for your house deposit, this can range all the way from 20 per cent of the property price down to as low five per cent of the price.
On this front, it’s advisable to aim high because a big deposit means you’ll need to borrow less money and therefore pay less interest over the life of your loan. What’s more, a bigger deposit can also impress a lender as it’s a sign that you’re good at managing your money.
Also, it’s worth remembering that the smaller your deposit is, the more likely you’ll have to pay lenders mortgage insurance. This is a one-off payment made when you take out your loan that can add thousands of dollars to the overall cost of your house buying journey.
Develop good money habits
Now you’ve got your budget and know how much you want to save, it’s all about developing good money management habits to get you to your goal as quickly as possible.
The first step here is erasing debt to curb unnecessary interest payments. Work to pay off personal loans, credit cards and other high interest debts you may have accrued over time.
On the flip side, consider opening a savings account with a decent interest rate or a term deposit that will likely give you a higher interest rate than a regular transaction account. If you already use a savings account, look around to see if there’s a better deal elsewhere.
You can also use technology to help improve your money habits. For instance, by setting up an auto-transfer to a linked saving account on pay day, you won’t be tempted to overspend and can ‘set and forget’ so you can save your deposit on autopilot, at a consistent pace.
Leverage first home super saver scheme
Another, sometimes overlooked, way to help save your house deposit is to make use of your superannuation fund via the federal government’s first home super saver (FHSS) scheme.
The scheme lets you to make voluntary contributions to your super fund in order to save for your first home, effectively enabling you to grow your deposit entirely inside your fund.
While the scheme isn’t for everyone, it’s worth considering if you’re buying a first home that you plan to live in for at least six months in the first year after the purchase.
Have realistic expectations
Once you’re on top of your finances, you can move to assessing the property market and finding the home that suits your specific circumstances.
At first, it can be tempting to get carried away and set your sights on a home that is far beyond your reach. But instead of looking for a dream home, make your first home a property you can realistically afford. This will serve to reduce the deposit you have to save.
Remember, saving a house deposit and buying a first home is a great achievement , but it doesn’t mean you have to live there forever. It can be the initial step to building equity towards a purchasing a property that better meets all your needs and wants down the track.
Information provided is of a general nature only and we have not taken your personal financial objectives, situation or needs into account. We recommend you consider if you need to seek professional financial advice before making any financial decisions.
