If you’re one of the many Aussies that dream of owning their own home you know how hard it is to save up for your home loan deposit but it’s a worthwhile exercise. However, doing it can’t be easily achieved. It can take years to build your home loan deposit savings. But with financial discipline, commitment and a well-executed strategy, you can build your home loan deposit faster.
Here’s what you need to do:
Determine your deposit size
The typical house deposit is 20% of the property price. But many lenders will accept a deposit as low as 10% or even 5%.
The typical house deposit is 20% of the property price but there are lenders out there that accept a deposit as low as 10% or even 5%.
Just keep in mind that a smaller deposit means you are borrowing more money and therefore paying more interest over time. Also, when your deposit is less than 20% you may need to pay lenders mortgage insurance (LMI). This can add thousands to your costs.
There are two parts to a property purchase: Your deposit and your loan amount. The deposit is the amount you must have saved to buy the property and the loan amount is the money you borrow.
Here’s an example:
Property price: $500,000
Deposit: $100,000 (a 20% deposit)
Loan amount: $400,000
In this example, buying a $500,000 property means a 20% deposit of $100,000. But if you went for a 10% deposit you’d only need to save $50,000 (but you’d have to pay LMI costs).
To sum it up, your deposit size depends on how much you are willing to borrow and how much you can realistically save.
Decide on the areas you’d like to live in and start looking for properties on sale to get some idea of what’s on the market. Then look at your income and expenses. Use a loan repayment calculator and compare your rent and mortgage repayments.
Take into account one more big upfront cost beyond your home loan deposit (and possibly LMI), stamp duty. If you’re a first home buyer you might get a discount or exemption on stamp duty, depending on where you live.
Get committed to saving
Once you set your home loan deposit goal, it’s time to get committed to saving. Here are some basic essentials tips to get you started:
- Manage your cash flow. Having a cash flow forecast in place can help you manage your cash flow more efficiently. Take the time to map out your cash flow and breakdown your monthly expenses. Find out how much your cash surplus is and how you can utilise it to help you save for your home loan deposit.
- Set a budget. With the help of your cash flow forecast, you can set a realistic budget and work out where you can adjust your budget. After making a budget, you need to commit on following it.
- Pay off bad debts. If you have any current debt that’s pulling you down, get it under control. Review your debts and prioritise paying off your high-interest debts before taking out a home loan.
- Maximise your savings. Make your money work hard while you build your savings. Consider growing your money while building your home loan deposit in a high-interest savings account or you could also put your savings in a term deposit account.
Save first, and Spend last
There are a lot of people who spend on whatever they can as soon as they get paid and save the crumbs that are left behind when we should do this in reverse.
You need to know your numbers, how much is going out and into your pocket. Create your cash flow system. You can do it on a piece of paper or you can download a cash flow forecast template to help you. It’s going to allow you to automate your home loan deposit savings and spend what’s on your expenses.
Utilizing Micro Investing
As we can see, from the current economy, interest rates are going down meaning that’s money in the savings account is not working hard for you. Did you know that there are investments out there where you can contribute a small amount? Leverage the effects of compounding and returns to help make your money work harder for you and save for your home loan deposit faster.
Stick the course
The best budgeters out there know their numbers, know what they have leftover and save for big things in advance like holidays and Christmas so it doesn’t break the bank. The best investors out there in the market stick the course, ignore the news, and just keep investing to get to their desired goal. If you can just maintain your strategy and stick to the course, getting to your property deposit is a no brainer and it’s easy.