How to save for your first home
In generations gone by, the ‘Great Australian Dream’ involved saving hard for a couple of years, before buying a home to raise a family and live out your best years in. Yet for many these days, The Great Australian Dream can feel like just that – a dream. With the perpetual rise of property prices, it now takes a lot longer – and often a significant load of debt – just to get a foot on the property ladder. The good news is, with interest rates currently at a historical low, that dream has become a whole lot more achievable. So, no matter where you are in a Australia, buying a home to live in or as an investment is no longer merely a dream. Here are some smart strategies to help you own a piece of paradise sooner:
First, do your homework
It’s important to get a feel for the market before you dive into the world of pre-approvals and mortgage rates. You might find that dreamy suburban spot close to your favourite eateries is wildly over-priced, but by casting your net a little wider to a neighbouring suburb, you can get a lot more for your dollar. At this point, think of it like window shopping, you’re simply getting a feel for prices which will help you set realistic expectations once you’re a little further down the track.
Factors to consider:
- How long are you planning to stay in your first home? Is it merely a step on the ladder or a long-term abode?
- Do you want to be close to friends and family?
- Consider your commute, how far is too far? And is public transport a priority?
- If kids are part of your equation (now or in the future) be sure to check the schooling options.
Give yourself a financial fitness assessment
Understanding your current financial position is the best place to start when saving for your first home – and the start of the financial year is a great time to do it. Once you’ve got that sorted, you’ll be ready to tackle the journey to the deposit. Here’s how to give yourself the financial once over:
- Track your spending – get a real understanding of your spending habits by logging into your online banking and doing a self-audit of your transactions. There are plenty of handy apps available (like these ones here) that you can link to your bank accounts to automatically track and group transactions. You’ll get a handle on where you’re spending too much money (that second coffee or cheeky croissant) and get plenty of insight into where you can make small changes to save some precious pennies.
- Tackle your debts – to avoid any surprises when you approach a lender, it’s a good idea to address any outstanding debts (which will impact on your credit rating and ability to borrow). This includes everything from long forgotten student loans to car payments or a TV bought on hire purchase. Even unused bank accounts and credit cards can affect your credit rating, so close these now. Tackling smaller debts is also great practice for taking on a substantial one in the future!
Set your sights on 20%
Short of a lotto win or an inheritance windfall, you’ll need to set your sights on saving the elusive 20% deposit. While it might seem huge (particularly with the current average deposit sitting at $106,743), it’s definitely worth the effort. Here’s why:
- Bigger deposit = borrow less – you’ll save money in the long run by paying less interest over the term of your loan.
- Avoid Lender’s Mortgage Insurance (LMI) costs – generally if your deposit is under 20%, you’ll be required to pay a fee to protect the lender from financial loss. LMI is essentially an insurance policy for lenders to cover them if you can’t meet your repayments.
- Access better rates – in most cases, if you’ve got 20% or more deposit saved, you’ll be eligible for special rates and deals which can save you even more money. Capitalising on the current low interest rates will save you a pretty penny too!
How to save a deposit
Saving a large sum of money is much easier said than done – particularly if you don’t want to live on a diet of tuna and rice for months on end. Here are our top 3 saving tips:
- Get budgeting – after tracking your spending, you’ll have identified areas where you can save some cash. We’re not suggesting you forgo the beloved smashed avo brunches, but perhaps look at cutting them back to a monthly treat. You’ll find small adjustments really do add up and a realistic budget (which doesn’t completely alter your lifestyle) will make saving feel much less arduous. A simple formula you could try following is the 50/30/20 budgeting hack – spend 50% of your income on needs, 30% on wants and 20% on savings. Setting up a dedicated savings account (which is automatically fed into from your salary) helps keep this money out of temptations reach and is also sometimes required by lenders to show ‘genuine savings’. This essentially gives the lender proof that you’re capable of saving and have the capacity to make repayments.
- Get creative – are there any simple ways you can instantly save a big chunk of money or increase your income? Think about moving back in with your parents or to a cheaper rental, foregoing the car for public transport (if it works for your situation) or whether you’re due a pay increase. Alternatively, you could investigate taking up a side hustle to boost your savings power.
- Investigate government help – there are whole host of options available to help first home buyers own a slice of real estate. Check out the options and whether you’re eligible for the First Home Owner Grant in your state or territory.
As daunting as it might seem at first, purchasing your first property is an exciting milestone. And with interest rates currently so low, there really is no better time to consider getting on the property ladder. If you are interested in talking to a property expert in your local area, please contact your local First National Real Estate agency for advice. Find your nearest office at www.firstnational.com.au
For financial advice and understanding your lending capacity visit your financial planner, accountant, or preferred banking institution. For advice on your real estate market visit www.firstnational.com.au