Congratulations on deciding to buy your first home! That’s the first big step ticked off your list. The next one is saving up your deposit. This may seem like a daunting task, but all you really need are a few clear goals, a realistic timeline, and a touch of expert advice. Armed with these tools, saving up for your deposit will be a piece of cake, not to mention a hugely rewarding experience. Here’s a break down of an effortless, efficient way to sort out your deposit.
Step 1: Figure out your “comfortable” borrowing limit.
Before we get to the savings part, it’s really important to set things straight on your borrowing limit. Feeling comfortable about your loan is far more important than taking the bank’s highest offer. A big key to success is factoring in your future plans when deciding on your lending limits. Making allowances for family plans, future work, and other commitments means you stay one step ahead. That way, the borrowing amount you decide on is always a realistic one.
Let’s look at an example. A bank might offer to lend you $500 000, but the repayments will be slightly higher than what you expected. However, a $400 000 loan would fit perfectly in your monthly budget and long-term plans. It might be tempting to take the higher offer, but taking the right offer for your situation is mostly the best choice. It helps you stay in control and avoid that extra stress.
That’s your borrowing limit sorted. And better still, you’ve now got your price range ready for when you start house hunting!
Step 2: Make a decision on your deposit.
Now you’ve worked out how much you can borrow. It’s good to work out how much you need to save. In most cases, your house deposit will be anywhere between 5 and 20% of the property’s value you’re looking at. But we need to narrow it down even more. A 20% deposit will save you Lender’s Mortgage Insurance (LMI), but if time is of the essence and your property’s value shoots up, this might be tricky to save in time. A 5% deposit on the other hand will mean paying for LMI, borrowing more and paying higher interest.
Our rule of thumb? 10% of your property’s value. It makes your deposit goal realistic, achievable and simple. Sorted.
Step 3: Make the most of schemes and grants.
Make sure to check these out – it’s where your research will really pay off. The Government has introduced heaps of schemes to help you get the keys to your house faster. If you’re a first home buyer (tick), they can reduce or even waive some of your extra costs like Stamp Duty or LMI. An advisor can be handy here with helping you find out which schemes you’re eligible for and how much they can save you in the long run.
Step 4: Work out your current cash flow.
This step is all about what’s coming in and going out. How much can you set aside each week, or month, for your deposit? Above all else, this golden figure has got to be balanced – after all, you’ve still got to make ends meet.
An even more helpful side effect of figuring out your monthly savings amount is getting an idea about the time frame you’ll need to save up. If you need a $50,000 deposit and you can afford to save $2,000 a month, that’s fantastic! It will take 25 months to reach your goal or a tad over two years, but remember, good things take time. With some professional help, you can get there even faster.
Step 5: Let the professionals help you!
There are so many questions when it comes to your new house. Should you build or buy? What type of house should you be looking out for? Is it close enough to your workplace? How many bedrooms? Bathrooms? Single or double-story?
…It can get a little overwhelming.
That’s why it’s good to have someone to guide you through the process. Professionals make sure you’re on the right track, and there are no hidden surprises for you along the way. They can help you assess different options and decide what works best for you.
And there you have it. With these steps, you’ll be on your way to buying your first house in no time. House deposit – sorted.