For those who aspire to own their first home, saving up a deposit can be the biggest obstacle in the process.
In fact, new research from CoreLogic and ANZ has found that on average, Australians are saving for 11.4 years to accumulate a 20% deposit.
Many aspiring homeowners might be wondering how they can overcome the deposit hurdle and own their own home sooner.
In this article, we provide 6 saving tips to help you get to a 20% deposit. We also explain some of the ways you can get a home loan without having a full 20% deposit.
Before you even start putting money aside for a home loan deposit, it’s usually a good idea to first determine how much you can afford to spend on a home. It might help to think about how much you pay in rent now and if this amount is manageable for you.
Once you know how much you can spend on a property, you can calculate what deposit size this would require. You can use this amount as your savings goal – a number for you to work towards as you put money aside.
Say you can afford to purchase a $600,000 property – a 20% deposit on this property would be $120,000. This is how much you’ll need to save to avoid paying Lenders Mortgage Insurance (LMI).
You can break this down further to work out realistically how much time it will take to save this amount and how much you’ll need to put aside each fortnight or month.
Make sure you remember to save for other home buying expenses like stamp duty and conveyancing costs. These are additional costs on top of your deposit, so factoring these into your saving can help you avoid any last minute surprises.
Calculate your borrowing power based on your income.
There are several government schemes available to help get first home buyers to a 20% deposit.
The First Home Super Saver Scheme (FHSSS) allows first home buyers to save money for their home loan deposit in their superannuation fund. When you’re ready to use the money, you’ll be able to take it out of your super and put it towards your deposit.
The benefit of doing this is that superannuation is taxed at a lower rate than income. So, you’re able to save money on tax, getting you to your deposit sooner.
The First Home Owners Grant (FHOG) is a government grant that first home buyers who buy or build a new home can put towards their deposit. The amount available under the grant varies between states and territories.
If you are eligible, it may be worth looking into these government schemes to assist with your home loan deposit.
After you’ve come up with your deposit goal, it’s time to go through your spending with a fine tooth comb.
Look at your transaction history and work out what expenses are necessary and fixed, and what expenses are non-essential. While you don’t have to cut out your non-essential spending entirely, you may find ways to cut back and help you get to your deposit goal.
For example, you might ease off on how much you spend on takeaway food or cut back on online shopping for a while.
You can also see if you can lower some of your fixed, necessary expenses too. You might compare energy providers and switch to a more competitive deal, or find a lower car insurance premium with a different insurer.
Once you’ve reviewed your spending habits, you can create a budget for you to stick to and help you get to your savings goal. It could be worth seeking help from a financial advisor when making your budget to ensure you’re on the right track.
As you save up a home loan deposit, it can be helpful to pay off any other debts you have first. These might be personal loans, car loans or credit card debt.
Paying off other debts before taking out a home loan can free up more cash to put towards your deposit and may help to increase your borrowing power.
Putting your savings on autopilot can take away temptation to spend and get you to your deposit goal faster.
You can do this by setting up a direct debit from the bank account your pay goes into, right to your savings account. This way, you don’t have to think about putting your money into savings – it’s done for you. Setting up the direct debit for pay day can work well too.
Ensuring that your savings are in a high interest bank account can help boost your deposit amount too. It may not seem like much, but every little bit counts. Plus, with the cash rate on the rise, lenders have started to increase interest rates on their savings accounts.
If you still have some time before you want to buy a property, you might consider a term deposit or investing to help you save a deposit.
An investment could help grow the amount of money you have to put towards your home loan deposit.
It could be a good idea to speak to a qualified financial advisor before making the decision to invest your money.
It is possible to get a home loan with a deposit less than 20%, however it is likely you will have to pay LMI.
LMI is a one-off fee typically charged to borrowers with a deposit of less than 20%, meaning they have a Loan to Value Ratio (LVR) of 80% or higher. Your LVR is your loan amount divided by the lender-assessed value of your property.
LMI protects the lender in the event you can’t pay back your home loan. The cost of LMI varies for each borrower, but the greater your home’s purchase price and the lower your deposit, the more you’ll pay in LMI.
Sometimes, paying LMI can be worthwhile for borrowers. For example, maybe you’ve found your dream property but you don’t have a 20% deposit saved and you don’t want to wait to buy in case the home gets snatched up by someone else.
See how much you might need to pay if you're low on a deposit.
There are several ways you can get a home loan with a deposit of less than 20% without paying LMI, including:
Do you have questions about saving up for a home loan deposit? Our Home Loan Specialists are here to help. Book an appointment at a time that suits you.
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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
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