Q: I keep reading about how long it’s going to take first home buyers to save a big enough house deposit with today’s property prices and it’s starting to stress me out. I’ve been saving a deposit for a couple of years now, but it is really slow going – especially with low interest rates on savings accounts. Do you have any tips for how I can save up my deposit quicker?
A: It’s great that you’re already working towards saving up a home deposit. I really believe home ownership’s an important part of our society, so starting to save a deposit early is a really sensible thing to do.
With property prices sky high in and around many capital cities, and lots of changes happening in investment lending, getting a foot on the property ladder is becoming more difficult for some, depending on what and where you want to buy.
While there’s no magic bullet to accelerate your savings, there are some things you can look into that may help you get into your first home sooner.
First Home Owner Grants (FHOG)
If you’re eligible for a FHOG, it’s a good chunk of money that lenders may consider as part of your savings and deposit. Some state and territory governments also offer additional bonuses for first home buyers like stamp duty concessions. Ask your Aussie Mortgage Broker or lender about it, and there’s plenty of information online about FHOGs that might help.
Consider a term deposit
Interest rates for savings accounts have been shrinking along with interest rates on home loans, which is hard for savers like you. Generally speaking, you should still be able to find a better interest rate by locking your money away in a term deposit, so have a look at these things to look for in a term deposit to help you choose the right one.
Set a realistic budget
Have you set yourself a good budget? By tracking all your spending over a fortnight you should quickly see where all your money is going and where you might be able to save some more! The important thing with a budget is that it needs to be realistic so you don’t limit yourself too much and then have a blow out later on. There are lots of useful tools and tips online that can help.
Lots of people think they need a 20% deposit to buy a property, and while that’s increasingly the case for investors, owner occupiers may have a little more leeway. I believe the bigger the deposit the better, though without a 20% deposit you may need to pay Lenders Mortgage Insurance.
But, needing a 20% deposit is a bit of a myth – and you need to ask yourself: 20% of what? Having an initial, free appointment with an accredited mortgage broker can help you work out what’s a realistic sum for you to spend on a property based on what you can afford. This will give you some direction towards how much of a deposit you actually need. There’s no point saving a deposit for a $500k property if you can’t afford the repayments.
Use a guarantee
There are some other ways around a big deposit, such as using a family member as a guarantee. You will still need to show a lender that you can afford your repayments and you may also need to show evidence of genuine savings – so it’s great you’ve started on this – but it can help you get a mortgage with a smaller deposit while also saving yourself Lenders Mortgage Insurance too. It’s very important that the person providing a guarantee receives independent legal and accounting advice.
For more information on buying your first home including saving and your deposit, download Aussie’s free First Home Buyers guide.
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