How to save a house deposit while renting

Saving a house deposit while paying rent requires budgeting, hard work and a little bit of financial knowledge. But it can be done. Here are 5 tips to help you get there:

1. Work out your deposit size and price range.
2. Create a budget.
3. Find ways to cut back on spending.
4. Look for a higher interest savings account.
5. Get creative with your buying strategy.

Work out your deposit size and price range

This consists of two question: how much are you willing to spend on a property, and how big will your deposit be?

Property price

Do some research on where you want to buy, what sort of property you're interested in, and be realistic about how much you can afford to pay in monthly home loan repayments. This will help you determine your deposit size and give you a realistic saving target.

How to research the property market

Deposit size

Once you have a rough idea of the amount you want to spend on a property you can determine your deposit size. For example, if you wanted to purchase a $750,000 property, the standard 20% deposit would equal $150,000.

But many lenders offer low deposit mortgage options for borrowers who have saved deposits of 10 or 5%. The only downside is you will need to pay lenders mortgage insurance when borrowing more than 80% of a property's value.

Speak to a mortgage broker during this stage so they can help you understand your borrowing power, which can dictate your savings goal.

Create a budget

Step back and take the time to understand your finances and spending habits. Do the following:

• Check your credit score so you can see if you any outstanding debts or other credit problems. This helps you work out whether there is room to consolidate or eliminate any debts, such as credit cards or personal loans.
• Identify your living expenses such as utility bills, transport and food to see whether you can minimise any of these costs. For instance, if you’ve been spending $80 on petrol every week, think about taking public transport or cycling to work. (It’s better for the environment too.)
• Think about unnecessary expenses that you could forego such as coffee, gym memberships or alcohol. This is where you can potentially save a lot of money. Instead of buying a daily coffee, have one at home, and make your own meals more often.
• Draw up a budget. As a general guide (and depending on your lifestyle needs), you should allocate around 50% of your income on living expenses (such as rent, transport, insurance and utilities), 25% of your income on entertainment (such as dining out, movies and concerts) and roughly 25% should go towards your savings. Around 15% of the amount you’re saving should go directly towards your deposit fund.

Find more ways to cut back on spending

A sensible budget is the first step to controlling your spending. But then you can try to find more ways to trim your debt

1. Can you minimise your rent? Find a roommate, move to a cheaper suburb or consider downsizing to a smaller or older place. If you’re currently paying $300 per week in an inner-city location, consider moving to an outer suburb location where you might pay just $200 per week. A $100 weekly saving may not seem like much, but this could add over $5,000 to your savings account each year, which could fast-track your way into the real estate market.
2. Demand a better deal. You can also try negotiating with your utility and service providers. Approach your electricity, gas and internet providers and ask for a better deal. You may be surprised to find out just how much providers want to retain loyal customers. And if they won't offer you a better deal, compare and switch to a cheaper option.
3. Be efficient. Another way to lower your expenses is to be conscious about your energy use. Turn off the air conditioner or heater when you’re not in the room, and switch to energy-efficient lighting to lower your monthly utility bills.

Look for a higher interest savings account

Open a high interest account that is dedicated to your deposit savings. You can separate your deposit funds from your other accounts and keep track of how much interest you're earning each month. When it comes to applying for a home loan, making regular deposits into a high interest savings account will demonstrate to the lender that you have good financial discipline.

Get creative with your buying strategy

If you can invest in property with a close family member or friend, saving for a deposit becomes much easier, as the amount you need is halved. However, there are other factors to consider before you purchase property with someone else, so make sure you do your homework.

Finding a guarantor for a home loan is another way to relieve some of the pressure of saving up for a home, which can also help you get into the property market sooner.

Rentvesting is another strategy that might work for you. Instead of saving a massive deposit for your dream home, you buy a cheaper investment property and rent it out. You keep renting yourself, but you also have a second property that should pay itself off.
John is the co-host of the this is money and this is property podcasts (formerly my millennial money and my millennial property). He is Director at SOLVERE Wealth, Director/Buyers Agent at Envisage Property, and is property coach of over 25 years.

To make sure you get accurate and helpful information, this guide has been reviewed by John Pidgeon, a member of Finder's Editorial Review Board.

Written by

Richard Whitten

Editor

Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio

Richard's expertise

Richard has written 529 Finder guides across topics including:

• Home loans
• Property
• Personal finance
• Money-saving tips