From saving to settlement

This is how to save for your first home

Hands down, saving a deposit would have to be the hardest part about buying your first home. Balancing rent, bills and your lifestyle, as well as saving that whopping big house deposit can seem impossible. But guess what?  It’s not and we believe you can get there with the right planning and support.

To help you grow your pot of gold that little bit quicker, here are some smart savings strategies to keep in mind.

How much do you need?

Before you even think about saving, you need to know how much to save.

ING’s April 2018 Millennial Homeownership Report, in which Pollinate surveyed 1000 Australians aged 22 to 37, found that most first home buyers (61%) aren’t really sure how much they should save for a deposit on a house… even though they are super-keen to become homeowners. To get themselves on a track to save, they need to do this one thing: set a goal.

Question is, how do you work out how much deposit you need

First up, check out the property prices in the area you want to buy in. Look at properties that match your criteria – for example, a three-bedroom fixer-upper or a move-right-in apartment – and see what these homes are selling for.

While you’re at it, use our borrowing power calculator to see if these property prices align with what you might be able to afford to borrow. If they don’t, you might need to look a little further afield.

Next, estimate your deposit. If you don’t want to pay lenders mortgage insurance (LMI) or ask for family support, then you’ll need at least 20% of the bank-assessed property value, plus an amount to cover upfront costs such as stamp duty and conveyancing fees.

But if 20% feels out of reach – and you’re keen to get on the property ladder sooner – you could shoot for a lower figure and pay the cost of LMI or seek a family guarantee. Keep in mind that when borrowing with a deposit of less than 20% interest rates might be a bit higher. There’s this, too:

• LMI is insurance that covers the lender in the event that you can’t make your repayments – and it can cost a lot.
• With a family guarantee, your guarantor uses the equity in their own property as security for your loan – and most lenders only accept a first mortgage and guarantee as security. So it’s a big step – your family should seek independent legal advice before committing to be a guarantor.

How do you get there?

Saving a sum of money like a house deposit takes planning, patience and perseverance. Follow these steps to accelerate your savings and get you from where you are today to your goal sooner.

1. Create a budget
   While a budget may seem a little ho-hum, think of it as your passport to smart savings. A budget records all your money coming in and going out, so you get a clear picture of how much you can afford to save each week or month.
   Get started with our budget planner. If you want to reduce the amount going out – so you can save that little bit faster – then think about little things in your life that you might be able to cut back on. That weekly meal out with friends? Pot luck dinners at home instead. That compulsive book-buying habit of yours? Get to know your local librarian. And so on.
2. Design a savings plan
   This is the fun bit. Work out how much you want to save and by when. Then, do the maths on how much you’ll need to squirrel away each week. If the answer seems overwhelming (like, “how on earth am I going to save $1,000 a month?”) then recalibrate your timing.
   Be realistic. It’s important that your savings plan feels achievable … otherwise, like a bad diet, you’ll ditch it before you’ve even really started.
3. Pay off debts first
   If you’ve got a credit card debt, a personal loan or any other debts hanging over your head, pay these off first. Not only will this give you a clear run towards your savings goal, but it will also look much better when you go to apply for a home loan. If you can, lower the limit on your credit card while you’re at it.
4. Use a high interest savings account
   Set up a direct deposit each week or month into a high interest savings account, so you don’t even have to think about the money you’re saving. Consider using a tool like ING’s Everyday Round Up too – It’s a great way to save even more money. As your savings accumulate in this account, so will the interest earned on those savings. Win-win.
5. Hunt out any grants
   You may be eligible for money or concessions from the government through the first home buyers’ scheme. The scheme varies from state to state, and your eligibility can depend on the type of property you’re planning to buy and the purchase price.
   This stamp duty calculator is a good one to see how much you could get – plus, it shows you how much you’ll have to pay for government costs like stamp duty, mortgage fees and transfer fees (which, sorry to say, you need to save on top of your deposit).
6. Be disciplined
   You need to be strict on yourself when you’re saving. Cut back on the things you really don’t need (think of it as a foray into minimalism, if you like). And any extra cash that comes your way – like work bonuses, birthday money or a tax refund – should go straight into that savings account, not a holiday.
   And remember, saving a large sum of money like a house deposit can take time … and there may be unexpected curve balls that throw you off your savings game every now and again. Remember to keep your eyes on the prize and keep chipping away.