Buying your first home is a huge challenge, and the hardest part is putting together a deposit. That’s because you’ll usually need around $120,000 saved – a massive amount for most Aussies.
Difficult as it may seem, it can be done – and the 110,000 people who buy their first homes every year in Australia are proof of that. Make it happen FAST by following our guide to saving for your deposit.
Do Your Research
First you need to think about what kind of home you want to buy and where. Take a look online to get an idea of how much you’ll need to spend to purchase the home that you want, then keep that number in mind throughout the process.
Set Your Goal at 20% Plus Expenses
It’s always best to aim to save a deposit equal to 20% of the home’s value, so take the number you decided on when researching and divide it by five and voila, that’s your deposit amount!
You’ll also need to cover the extra expenses you might incur when buying a home, like solicitor fees, bank fees, moving costs and stamp duty. Aim to save an extra $10,000 to $20,000 or more for these costs.
Break Your Goal Down into Small Steps
Once you’ve calculated roughly how much you need to save for a deposit, break that amount down into smaller goals. For example, if you want to be in your home within two years and you have to save $60,000, you’ll need to put aside $2,500 a month. If the amount is unrealistic you might need to go for a more affordable property, cut down your spending or give yourself longer to save. Being realistic about your goals is important and will also spare you from disappointment in the long run.
Create a Budget and Cut Costs
To make sure you reach your monthly savings goal, document your monthly expenses in detail. Look at your past spending and all your outgoings, including rent, food, entertainment, clothes, eating out, bills and transport. Once you’ve added it all up consider which costs you can reduce.
Get on Top of Your Debt and Examine Your Spending
Debt can make it difficult to save and to get approved for a home loan. For that reason, you should create a plan to repay as much of your debt as possible whilst also saving for your deposit. Aim to be debt free by the time you apply for a home loan if possible.
Automate Your Savings
Set up an automatic payment that transfers your monthly savings from your everyday account to a savings or investment account as soon as you get paid. That way you’ll never spend your savings and you’ll slowly get used to spending less every month.
You don’t have to do all the work – if you invest your money wisely it’ll grow by itself. Speak to a financial advisor to figure out whether a managed or indexed fund or other investments could help you reach your goal faster. You could also make additional contributions to your Super and use this cash to buy your first home as there may be tax advantages by using this method.
Look into First Homeowner Grants
If you’re eligible you could receive between $7,000 and $20,000 in government grants to help you purchase your first home. In some states eligible first home buyers also receive discounts or exemptions from stamp duty. Eligibility criteria differ slightly from state to state but generally require that:
- Your income, or the combined income of you and your co-purchaser, must be below a certain level.
- At least one applicant must be a permanent resident of Australia.
- You must buy the property as a person, not a company or trust.
- You and any co-purchasers must not have previously owned land in Australia which had a residence on it.
- You and a co-purchaser cannot have lived in a home which you owned.
Find out more by checking out our article on First Homeowner Grants offered in each state.
Consider Going with a Smaller Deposit
If 20% is too much to save and you’re in a hurry to buy, you could purchase a home with a deposit as small as 10%. However, this may make it more difficult to get home loan approval, you may pay a higher interest rate, and you’ll also have to pay Lender’s Mortgage Insurance – a one off cost that can exceed $10,000. But beware, because these costs can make your home loan far more expensive in the long run.
Ask Family for Help
Around 55% of first home buyers get help from their parents. In fact, Digital Finance Analytics recently found that the bank of mum and dad is Australia’s 10th largest lender, with over $20 billion in property loans (and gifts) per year.
If you’re finding it difficult to save, consider asking for a helping hand. Whether mum and dad loan you a chunk of money or act as guarantors on your home loan, they could make buying your first home far easier.