Saving the deposit for your first home can seem like a daunting task, but it doesn’t have to be that way. Start putting these four tips into action and you’ll find yourself in a position to hand over a deposit sooner than you think.
1. Be realistic about where you’re going to start
Before you even get to the point of looking at properties to buy, it’s wise to sense check the price brackets you’re looking at.
Wendy Brown, Head of Broker Home Loans at Macquarie’s Banking and Financial Services Group, says you don’t have to have it all, straight away.
“It’s smart to think long and hard about where you’re happy to start, rather than where you want to end up,” says Brown.
“A lot of people want to purchase a property similar to the one they grew up in,” she says.
“But you shouldn’t feel like you have to buy your ‘forever’ home straight away.”
2. Develop good saving habits early on
There are many things that can help first-home buyers save for a deposit (20% of the purchase price if you want to avoid paying Lenders Mortgage Insurance), and no doubt you’re already doing many of them:
- Have a separate, high-interest account to put savings into, and set up regular automated payments.
- Pay off credit cards, loans and hire purchase agreements.
- Create a savings plan.
- Use a budget planner and track all of your purchases to identify where you’re overspending.
“It’s important to be able to demonstrate to a lender you’re good with money,” says Brown.
“Being in the habit of saving regularly not only builds up your deposit amount, but it also shows really good behaviour, which is what lenders look for when assessing your capacity to repay a loan.”
3. Save more – by pretending you already own a home
But as well as taking the steps above, savvy savers plan their finances as if they already own a home.
Mortgage repayments could be significantly more than your rent, and home ownership comes with a whole array of other costs – from council rates to maintenance – that you don’t incur when renting.
Configure your monthly budget as if you had these additional expenses. Not only will it help you get used to the budget you’ll need to live on when you own a home, it will also help you fast-track your savings.
“Look at your month’s spending,” says Brown. “If you had the home loan repayments to make and all of the other expenses that come with homeownership, what would you have to change?
“It helps identify the things you are actually willing to sacrifice, as opposed to the things you theoretically think you can live without. It’s also a great way to start setting money aside for a deposit.”
4. They understand what lenders will look for when assessing their application
When you get to the point of applying for pre-approval, and then a home loan, lenders will evaluate your application in a number of ways. Following the advice above will not only serve you well in terms of saving a deposit, it will also display strong financial behaviours, too.
“Ultimately, the lender wants to see that you’re a good candidate for a loan and have confidence in your capacity to pay it off,” says Brown.
This can influence the interest rate a lender may offer you, or even whether they offer you a home loan at all.
“While a windfall – be it a tax return or a cash gift from your parents – may go towards a deposit, it doesn’t show you’re in the habit of saving.
“So it’s good to have demonstrable positive habits, as well.”
Another element Brown recommends you review if you’re saving for a home deposit is your use of credit – be it credit cards, in-store credit or payment plans.
“When it comes to credit cards, it’s all about your limit. Even if you have a zero balance, a $10,000 limit is viewed as you having $10,000 of accessible credit. If you can do without a credit card, cancel it.
“Lenders will also look at other behavioural indicators, such as using in-store credit and instalment plans. If you’re using these now, lenders will assume you’ll continue using them after you have your home loan.
“It’s a crucial time to get into the right habits – both to save your deposit in the first place and also prove to your lender you’re low risk in terms of your propensity to repay the loan.”
- Be realistic about the type of property you’re happy to start in.
- Aim for a 20% deposit to avoid Lenders Mortgage Insurance.
- Fast track your savings by behaving as if you already own a home.
- Establish good behaviours that will demonstrate your capacity to meet loan repayments.
- Cancel any unused credit cards, and avoid making purchases on instalment plans.
To make your first home-buying experience as easy as possible, talk to a Macquarie home loan specialist on 13 62 27.