For most first-time home buyers, saving enough money for a deposit is one of the biggest obstacles to getting into the property market. It can take people years to save up enough for a house deposit, especially when they’re balancing several other living expenses, like rent, utilities and groceries. In fact, recent research from ANZ-CoreLogic found that median-income households needed to save for over 10 years to have enough for a 20% deposit.
How to start saving for a house deposit
When it comes to saving for a deposit, it often helps to have an end goal in mind. So, before you even start putting money aside, take the time to work out exactly how much you can afford to spend on a home.
Using a borrowing power calculator can be a great way to understand what you can afford. Once you know how much you can spend on a property, you can calculate what deposit size this would require.
Most lenders like to see a deposit of at least 20%. While you can often still buy a property with a smaller deposit, most banks require you to pay Lenders Mortgage Insurance (LMI) to cover the extra risk.
Let’s say you can afford to purchase a $600,000 property – a 20% deposit on this property would be $120,000. 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.
Saving up enough cash to put toward a deposit is one thing, but don’t forget to factor in all the other upfront costs that come with buying a home, including stamp duty, conveyancing costs, application fees and moving costs. These are additional costs on top of your deposit, so factoring these into your savings can help you avoid any last-minute surprises.
Once you’ve worked out how much you’ll need for a deposit and the other added costs of buying, you can use this amount as your savings goal.
Budgeting and managing your finances
After you’ve worked out your deposit goal, it’s time to go through your spending with a fine tooth comb. Start by looking at your transaction history to figure out what expenses are necessary and fixed, as well as what expenses are non-essential.
Budgeting isn’t about completely eliminating your non-essential spending entirely, but instead finding ways to cut back and help you get to your deposit goal sooner. For example, you might choose to ease off on how much you spend on takeaway food, cut back on online shopping or suspend some of your subscription services for a while.
You can also see if you can lower some of your fixed, necessary expenses. For instance, it could be worth comparing energy providers and switching to a more competitive deal or finding a lower car insurance premium with a different insurer.
Once you’ve reviewed your spending habits, you can create a budget 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.
While we’re on the topic of budgeting, it can also be worth paying off any debts you have first. This can include things like personal loans, car loans or credit card debt. By taking care of other debts before taking out a home loan, you’ll be able to free up more cash to put towards your deposit. Plus, it can also help to increase your borrowing power.
Speed up your savings
Creating a budget can help you to streamline your expenses and redirect those savings toward your home deposit. However, if you’re keen to increase your income and supercharge your savings, there are a few strategies you can use.
Bring in some extra cash by starting a side hustle or taking on freelance work. If you have a hobby you do in your spare time or you’ve got a skill that could be monetised, turning it into a side hustle while you’re saving towards your deposit can help to boost your income.
Alternatively, you might like to give your home a bit of a spring clean and sell unused items for extra cash. This can be a great way to declutter and you might be surprised at just how much extra money you can bring in from bits and pieces you have lying around the house.
While your savings sit in an account, why not make them work for you by investing them in a high-interest savings account or term deposit? You can even set up an automatic transfer into your savings account to steadily grow your nest egg. That way, you can maximise your savings while working towards your goal.
Try using our deposit savings calculator.
How to save for a house deposit while renting
As a renter, it can be challenging to save for a deposit and cover your rent at the same time. Depending on your circumstances, it could be worth exploring cheaper or alternative rental options to help you save a little more cash.
If you’re currently living alone or with a partner, you might want to consider moving into a share house, renting out a room (if the property allows for it) or downsizing to a cheaper rental. Although these options aren’t always ideal and could require a bit of compromise, they’re often temporary and can be worth it to get to your savings goal quicker.
Many aspiring homeowners even move back in with their parents or another family member for a short period of time to help them cut rental costs and other expenses, like utilities and groceries.
How to stay motivated while saving
Saving towards a big goal, like a house deposit, takes time and dedication.
One of the best ways to save for a house deposit is to break your overall goal down into smaller, more manageable milestones. By making these smaller goals more achievable, you’ll be more motivated to stick to your savings goal.
Plus, you can celebrate your progress each time you hit one of your savings milestones.
If you like to visualise your goals, it can help to create a vision board or even set regular reminders to keep yourself motivated and accountable.
Take advantage of extra help
Saving a large enough deposit for a home can be a huge barrier for some people. With this in mind, it’s often worth exploring the different options available to you to help you get to your deposit goal quicker.
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 by making additional contributions to 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. Keep in mind that eligibility requirements apply and there are caps on how much you can contribute and withdraw.
The First Home Owners Grant (FHOG) provides first-home buyers with a grant to put towards buying or building a new home. The amount available under the grant varies between states and territories.
Alternatively, if your family is in a position to provide you with a financial gift to contribute toward your deposit, you might be able to get your foot in the door of the property market sooner.
Can I get a home loan with a deposit of less than 20%?
While it’s possible to get a home loan with a deposit less than 20%, chances are you’ll have to pay Lenders Mortgage Insurance (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.
As the borrower, it’s up to you to cover the cost of LMI, even though it’s designed to protect 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.
That said, there are instances when paying LMI can be worthwhile for borrowers. For example, if you’ve found your dream property but you don’t have a 20% deposit saved, it can be worth paying LMI to secure the home before it’s snatched up by someone else.
There are several ways you can get a home loan with a deposit of less than 20% without paying LMI, including:
Government schemes: Besides the FHSSS and the FHOG, there are several other government grants to help buyers secure a loan with a small deposit, including the First Home Guarantee, Regional Home Guarantee and Family Home Guarantee. The upcoming Help to Buy Scheme is also set to commence soon, offering another opportunity for low-deposit buyers to get into the market.
Guarantor loans: With a guarantor loan, your parents or another close family member can use the equity in their property to secure your home loan deposit, making up the remainder of the 20%.
Financial gifts: If you receive a monetary gift, you can put this toward your deposit so long as there’s no obligation to repay the money. That said, you’ll also need to demonstrate genuine savings as part of the application process.
Professional home loans: Some lenders will waive LMI for certain professions, like doctors, dentists, lawyers and engineers. This is because these professions typically have stable employment and higher incomes.
Specialist lenders: Certain lenders offer loans without charging LMI for borrowers who may have difficulty coming up with a 20% deposit. Chat with an Aussie Broker to learn more and find a lender who suits your needs.
