How to really save a home loan deposit

Strategies, tips and clever ideas to help you get a deposit together and buy your home.

Saving for a deposit is one of the biggest hurdles to getting into the property market. As house prices rise, the task only gets more difficult. It can be tough to even figure out how to get started. That's why we’ve produced this definitive guide to home loan deposits. We'll show you how much to save for a deposit, what assets you can use as a deposit, how to build your budget and how to maximise the money you have. We've also provided some outside-the-square suggestions if saving the deposit is simply out of the question or if you’re looking for a no deposit home loan solution.

Read on to learn everything you need to know about home loan deposits.

How much money do I need to save?

There are three main costs when getting a home loan:

  • Your deposit
  • Lenders mortgage insurance (not every borrower has to pay this)
  • Stamp duty

The deposit and LMI

The typical Australian borrower saves a 20% deposit and the bank lends them the remaining 80%. In mortgage language, this is called a loan-to-value ratio (LVR) of 80%. But many lenders will lend you up to 95% LVR. In other words, you can get a home loan with only a 5% deposit.

So what's the catch? Well, if you borrow more than 80% of your property's value (meaning your deposit is under 20%) you will have to pay lenders mortgage insurance (LMI). Depending on your deposit size and how much you're borrowing this can run to thousands or possibly tens of thousands of dollars.

Confused? Let's break down the deposit size difference and how much LMI could cost. Note that these costs are estimates made using Genworth's LMI premium estimator. They are a useful guideline but your lender may use a different insurer and actual costs may vary.

House price 20% deposit LMI estimate 5% deposit LMI estimate
$450,000 $90,000 $0 $22,500 $14,364
$650,000 $130,000 $0 $32,500 $27,849
$850,000 $170,000 $0 $42,500 $36,418

Stamp duty

State and Territory governments charge stamp duty on most property purchases. It's another major cost you need to consider in addition to saving a deposit. The good news is that there are stamp duty discounts for first home buyers in many states. Depending on the purchase price of your property and where you're buying you may be exempt from stamp duty.

You can read more on this topic in our state-by-state stamp duty guide, or enter your details into this stamp duty calculator.

Read more on how much you should save for your deposit

What can I use as a deposit?

Now that you’ve figured out how much you’re going to need for a home loan deposit, it means you’ve got a savings goal in mind. But do you have to actually save all that money? What if you’re lucky enough to have access to funds from other sources?

Jeremy Fisher headshot 2
Believe it or not, there are some outside-the-square options when it comes to saving a home loan deposit. We spoke to top-performing mortgage broker Jeremy Fisher, the director and founder of 1st Street Home Loans in Sydney. Fisher has settled more than $1.5 billion in loans since 2002 and has won multiple awards in his industry. Fisher shared with us some of the ways you can boost your deposit from outside sources. It turns out that while you’re still going to need cash in hand to serve as a deposit, that cash can come from a few different places.

There’s one catch with using any sudden influx of cash as a home loan deposit: the genuine savings rule. Most lenders want to see a pattern of savings to build up your home loan deposit. This shows them that you have good financial discipline. As a general rule, most lenders like to see six months of genuine savings. That doesn’t necessarily mean you have to be contributing regular amounts. But if you find yourself suddenly awash in cash, most lenders will want you to hold it in your account for six months before using it as a home loan deposit. There are some lenders out there who don’t require genuine savings, but six months is a pretty good guideline to follow in most cases.

Can I use my super as a deposit?

The answer to this one is “not exactly”. There’s been plenty of debate about the merits of allowing buyers to dip into their superannuation funds for a home loan deposit. While Fisher tells us that you can’t actually raid your super for a deposit, there is an option that allows you to leverage your super.

The federal government recently announced the First Home Super Saver Scheme, which allows you to salary sacrifice into your superannuation for the purpose of saving a home loan deposit. The funds that go into this account are taxed at a much lower rate than your normal pay, which means you have the potential to save more than if you’d taken the same amount of money and put it into a savings account.

Can I use a First Home Owners Grant as a deposit?

You can use a First Home Owners Grant to form part of your deposit. This is very useful if you're building or buying a new property as you can add the grant to your deposit. In some states you might even be able to access a grant whether you're buying a new property or an older dwelling. The most important thing when using a grant for your deposit is to be completely certain that you and the property you're purchasing meet the necessary eligibility requirements for your state or territory.

Can I use shares as a deposit?

SharesIf you have a share portfolio, you might wonder about using it for a deposit. You can’t just show a lender your portfolio and have them take it on good faith as a deposit, but you can liquidate your shares and use the cash for a deposit.

One great thing about selling your shares to use the cash for a home loan deposit is it can help you get around the genuine savings rule, Fisher says. As long as you’ve held the shares for at least six months before you sell them, you should be able to use the cash right away.

Can I use my rental history as a deposit?

While you can’t actually use rental history as a deposit, you can use it as proof of genuine savings, according to Fisher.

“As a general rule, a 12-month rental ledger is required to confirm, and the lease must be in the applicant’s name,” he says.

This means if you come into some money that you want to use as a deposit, you can get around the genuine savings requirement by having 12 months of good rental history.

Can I use a gift or inheritance as a deposit?

Hand holding gift

Most lenders will require a 20% deposit to avoid the genuine savings rule. However, a few lenders will accept a 10% deposit without the need to confirm genuine savings...

Suppose your parents gift you the money to use as a home loan deposit. If you should be so lucky, there are a couple of requirements you have to fulfil.

First, your parents will have to sign an affidavit verifying that the money is a gift rather than a loan. If your parents require you to pay the money back, lenders will look at it as a liability when determining your borrowing power.

Second, the amount they lend you will have to meet certain requirements to avoid the genuine savings rule, Fisher says.

“Most lenders will require a 20% deposit to avoid the genuine savings rule. However, a few lenders will accept a 10% deposit without the need to confirm genuine savings,” he says.

The same goes for money from an inheritance. You can use these funds for a deposit, but to get past the genuine savings rule, you’ll need a 10%–20% deposit.

Can I sell something and use the proceeds as a deposit?

If you happen to have some valuables sitting around that you want to sell, you can use the funds for your deposit. Once again, though, Fisher says you’ll need to hold the funds in your account for six months to meet the genuine savings rule.

Can I use a personal loan as a deposit?

So what about just borrowing more money to use as a deposit? Can you go down to the bank, take out a personal loan and then turn around and use it as a deposit to get a home loan? Surprisingly, Fisher says most lenders will let you use a personal loan as a deposit:

“Most lenders will consider this. However, the personal loan funds will need to have been held for over six months, plus the personal loan liability will need to be included as a liability so serviceability needs to be maintained.”

In other words, borrowing money to so you can borrow more money is a double-edged sword. Any amount you borrow for a deposit is going to be counted as a liability when assessing your home loan. Using a personal loan as a deposit could affect the size of the home loan lenders are willing to give you.

How can I save up the money?

This is where the hard work begins.

To save a home loan deposit, there are three main steps to take:

  • Look at what you’re actually spending
  • Think about the kind of lifestyle you’re comfortable with
  • Plan out your future spending and make sure your savings are set up in the most lucrative way

Let’s talk about each of those steps in turn.

1. Examine your spending

Magnifying glass and walletThe first step to saving a home loan deposit is to take a good look at your own spending. A lot of us don’t actually have a good idea where all our money goes each month. But in order to build a workable budget and save your home loan deposit, you’ll need to be able to account for every dollar.

Does that seem like a pretty mind-numbing task? Fortunately, there are tools out there that can help you.

If you have online banking (and who doesn’t these days?) your banks may have web-based platforms that allow you to go through and categorise your spending. You can tag similar transactions so that they’re grouped together, and the bank’s online portal will give you a snapshot of what you’ve been spending and where.

But there’s actually an even easier way to keep track of all your spending.

There’s a handy app called Pocketbook that you can download for free for iOS or Android. The app uses machine learning to scan through your bank account and categorise all your spending. It will deliver you a complete snapshot of your finances based on:

  • Where all your money is going
  • When your bills are due
  • How much you can safely spend during each pay period.

As you keep using it, Pocketbook gets better and better at correctly categorising your expenditures and income.

The great thing about figuring out where each and every dollar is going is that you can identify some easy wins. You may have automatic payments going out for services you haven’t used in ages, like that gym membership you’ve forgotten about.

These are relatively painless items to trim out of your spending, but you might not even be aware of their existence until you take a good look at all your expenditures.

Knowing where your money is going should give you a good idea of just how much extra money you have each month to devote to savings, and what expenditures you can eliminate to free up even more.

Once you’ve got a better idea of your spending it’s time to take an honest look at your lifestyle, and ask yourself some tough questions. How much are you willing to sacrifice to reach your home loan goals?

2. Assess your lifestyle

Clipboard

There’s no shame in wanting to maintain your current standard of living. It just means that you might need to reassess whether or not now is the best time to think about getting into the property market.

So you’ve gone through all your spending and figured out how much of your money is going to things you need versus how much is going toward things you want. The next step is to have a look at that “things you want” category and decide just how much you actually want them.

In recent media coverage, smashed avocado on toast has become a sort of symbol for millennial excess and entitlement. The argument goes like this: young Australians are wasting their money on frivolities like smashed avo. If they just reined in their lavish spending they’d all be able to afford a home loan deposit.

Yes, it’s ludicrous, but there’s also a grain of truth to it. Breakfast aside most of us spend quite a bit of money on life’s little luxuries, and that this spending can really add up.

But here’s something very few of the finger-wagging baby boomer pundits will tell you: there’s nothing wrong with enjoying these little luxuries. What you spend and where you spend it is entirely your business.

It does mean, however, that you need to assess how much you’re really willing to sacrifice to get into the property market, and whether saving a home loan deposit is a feasible goal for you. With this in mind, it’s time to ask yourself some tough questions.

  • Are you willing to sacrifice a great deal of your current standard of living to save a home loan deposit?
  • Are you willing to consider drastic measures, such as moving back home with your parents for a period of time, or taking on extra employment to boost your income?
  • Are you willing to forego social events, holidays, takeaway food, new clothes or other little comforts in order to maximise your saving potential?

Don't feel bad if your answer to these questions is no. There’s no shame in wanting to maintain your current standard of living. It just means that you might need to reassess whether or not now is the best time to think about getting into the property market.

If the answer to any of these questions is yes, you’ll need to start putting your plan into action by trimming out nonessential spending and building a budget.

3. Plan your budget

A good budget should be realistic and flexible, but since you’ve got a substantial savings goal, it will also need to be aggressive. That means you’ll need to cut out a lot of non-essential expenses.

A lot of people use the 50/30/20 rule for budgeting. This model allocates 50% of your after tax income for necessities like bills, rent and groceries, 30% for entertainment and 20% for savings. This is a good, workable ongoing budget.

But because you’re saving toward a home loan deposit, you may want to allocate even more money to savings. This means finding areas in the 30% entertainment budget where you can tighten your belt. Potentially, it means trimming items out of your 50% necessities budget too.

Here are some tips for managing your budget:

Categorise your spending

The first step is to categorise your spending. If you’ve followed our advice and assessed your current spending patterns, you should have already done this.

One bank account that categorises your spending for you is the Macquarie Platinum Transaction Account. With this account, you can keep track of your spending via your mobile banking app, and choose to track your purchases by category, merchant or even location. It will then produce spending trends based on your personal spending habits, so you can see each month where your money is going and where you have capacity to save. You can read more about this account here.

If you’re using an app like Pocketbook, you should have a good idea where all your money is going. Go through at least a couple months of spending to get a good idea of your regular spending patterns, and don’t forget less frequent expenses such as quarterly or annual bills.

Once you’ve categorised your spending, look for obvious areas of waste. As we mentioned before, you can chalk up some easy wins by cutting out payments going toward services you either don’t use or seldomly use.

Next, look at some less obvious areas:

  • How much are you spending on eating out?
  • How much are you spending on groceries, and are you shopping as economically as possible?
  • What amount of your pay is going toward non-essential entertainment expenses like alcohol?

These are all areas of potential savings.

You’ll also want to identify if you have a particular area of weakness when it comes to spending. Are you bewitched by the allure of a good bargain when online shopping? Does the siren song of coffee call to you multiple times per day? Knowing common areas where you struggle to rein in your spending can help you figure out ways to change your habits.

Finally, look at some outside-the-square savings opportunities. Are you willing to save on rent and utilities by moving back in with your parents or at least moving into a cheaper house? Are you getting the best deal possible on your Internet and mobile phone plans? Can you save money on utilities by switching providers or changing your billing plan or useage?

Once you’ve identified areas for potential savings, you can start allocating your funds.

Use a budgeting tool

Trying to keep a budget in your head is setting yourself up for failure. Likewise, pen and paper or spreadsheet budgets can be difficult and tedious to maintain.

Try to find a budgeting tool that helps do the work for you. There are plenty of great apps out there, both web-based and mobile:

  • If you’re looking to build a fairly simple budget, you can use the budgeting tool on the MoneySmart website from the Australian Securities and Investment Commission (ASIC). It allows you to build a budget by entering your regular expenditures across a variety of categories.
  • ASIC also has a mobile app called TrackMySPEND that allows you to set savings goals, and to keep track of them as you go.
  • Goodbudget is another handy app that allows you to track your spending in each separate category, so you know how much you have left to allocate to different expenses.
  • As mentioned earlier, for ease of use and all-around functionality, we like Pocketbook. Where the other apps require you to input your information manually, Pocketbook links to your bank account and tracks your spending in real time. You can set spending limits and the app will notify you when you're near your limit.
Allow for emergencies

Regular bills aren’t too difficult for those who are disciplined with their finances. But anyone's budgeting can be derailed by unexpected emergencies. No-one can foresee events like sudden car repairs or vet bills, but you can prepare for them.

Set aside a certain portion of your budget for emergency expenses. That way you won’t deplete your home loan deposit savings should an unexpected event require some quick cash.

Developing this discipline is a great idea as you head toward home ownership. That way your regular home loan repayments aren’t thrown off track by sudden repairs or an unexpected bill.

Be realistic

The key to success with your budget is to be realistic. If you’ve made your budget too spartan, you’ve set yourself up for failure. Similarly, if you’ve severely underestimated your regular spending on necessities, you’ll find your savings coming up short.

This being said, try to keep in mind that all the sacrifice and hard work is for a limited period of time. You’re working toward a goal, and if after you reach this goal you should be able to settle into a more relaxed budget (such as the 50/30/20 model we mentioned before).

Pay your debt first

It may seem counterintuitive to devote money elsewhere when you’re trying to save for a home loan deposit, but one of the best strategies you can employ is to get yourself out of debt.

Any debt you have is going to decrease your borrowing capacity when you apply for a home loan. When you have yet to save a deposit, actually applying for a home loan may seem a long way off, but you need to take steps now to put yourself in the best position.

The interest you’re paying on servicing any debt you have is eating into your ability to save for a home loan. If you attack your debt first, you’ll end up with that much more to devote to your home loan deposit savings goal.

Consider separate accounts

A handy trick to managing your spending is to consider keeping your money in separate accounts for separate purposes. You’ll want to have your deposit savings in an account that’s accruing a decent amount of interest, but you can further split your funds into an account for necessities and an account for entertainment. This makes it easy to keep track of your finances.

AMP's Bett3r Account is ideal for this. It's a handy three-account bundle with linked Pay, Spend and Save accounts. You can set personal savings goals and this account will automatically categorise your money to help you meet them. The liked Pay Account sets aside money for bills and other regular expenses, and automatically sends money to your linked Save Account. Any money that is left is sent to the Spend account. You can read more about this account and apply online here.

One warning though: make sure any new accounts you open don’t come with account-keeping fees. Otherwise, you’ll simply be adding another unnecessary expense.

4. Maximise your savings

MoneyNow that you’ve figured out how much from each pay cycle you can devote toward your home loan deposit, you need to make sure you’re getting the most out of your savings. This means you’ll want to put your money in a high interest savings account.

But what kind of high interest savings account should you choose? The answer to this depends on how much flexibility you think you’ll need.

There are three types of savings account that generally offer higher rates of interest, and each one is suited to different sets of circumstances. You’ll need to decide which one sounds best for your situation.

Bonus saver accounts

These accounts offer you an interest rate bonus if you meet certain conditions. The conditions might include depositing a certain amount each month, not making withdrawals or keeping a certain minimum balance.

Bonus saver accounts can provide you a great incentive to save by boosting the savings rate you’re receiving if you meet the account’s conditions. If you don’t meet the conditions, your account simply reverts to a lower interest rate for that month. These accounts typically offer a variable interest rate, which means it can move up and down depending on market conditions.

Bonus saver accounts could be a great way to save your home loan deposit, as they offer a high interest rate but still offer access to your funds should you find yourself in a tight spot. Some great bonus saver account options are as follows:

Introductory bonus savings accounts

Introductory bonus savings accounts offer a competitive bonus interest rate, however only for a set period of time. These accounts usually offer the bonus interest rate for about three to six months after opening the account, after which the account will revert back to the standard variable rate which is often much lower. It's a way for providers to entice you to open an account with them.

The pros? These accounts offer a competitive interest rate and can often have less deposit requirements and withdrawal restrictions than standard bonus saver accounts. The cons? You need to be a new customers to receive the high bonus introductory rate. Also, after the introductory period is over your savings will only earn the standard variable rate which is often quite low.

Here's a couple of introductory bonus savings accounts you could consider to give your savings a kick-start:

  • Bank SA Maxi Saver: Earn a maximum variable rate of 2.85% for the first 3 months after opening the account
  • HSBC Serious Saver: Earn a maximum variable rate of 3.10% for the first 4 months after opening an account
Term deposits

Term deposits can offer high interest rates in exchange for restricting access to your funds for a predetermined period of time.

Term deposits range in their fixed terms from as short as one month to as long as five years. During this time your funds are locked away and you can’t get access to them without being penalised. Even if you accept the penalties involved, many term deposits require 30 days’ notice to break.

The interest rates on term deposits are fixed, which means they won’t move up or down during the agreed term. This means you’ll know exactly the amount of interest you’ll be paid by the end of the term.

If you want to lock your money away to keep it safe from the temptation of using it for other purposes, and if you prefer a fixed rate of interest, a term deposit could be a good option for saving your home loan deposit.

Use savings tools

Some bank accounts offer handy tools and features to help you save. These can really help you meet your goal of saving for a deposit. For example, ING offers a feature called Everyday Round Up. Customers can opt to have their daily transactions from their Orange Everyday account rounded up to the nearest $1 or $5, with the difference being sent to their linked Savings Maximiser account.

CUA offers a similar tool to its customers, called Savings Top-up. This tool allows purchases over $10 made from the CUA Everyday account to be rounded up to the closest $1 or $5 and sent to a linked CUA savings account.

Setting clear, personalised savings goals can help motivate you to meet them sooner. The Westpac Life Savings Account does just this: it allows customers to set your own savings goals, and track your progress online or via the mobile banking app. A tool like this can really help you to visialise your goal and stay on track.

If the process of saving money regularly is not your strong suit, there are plenty of savings tools available to lend a helping hand.

Other investment classes

You don't necessarily have to save for your deposit using a straightforward savings account. In fact, you might find that putting all your deposit money into a savings account results in you chasing a moving target.

Allow us to explain:

Some of the best high-interest savings accounts out there currently accrue 3% interest. The problem with this is that house prices could appreciate much faster than that. For instance, the latest CoreLogic figures show that Sydney house prices have risen just over 11% year-on-year. That means if you're putting money in a savings account at 3% interest, house prices could be rising faster than your ability to save and accrue interest.

So what can you do?

You could think about investing in an asset class that's likely to see a stronger return, such as shares. Or, for that matter, you could consider putting your money in the asset class that you want to buy. In other words, property.

Fortunately, there are ways to invest in the property market that don't involve buying a house. For instance, Real Estate Investment Trusts (REITs) are funds that invest in real estate, allowing investors to buy shares and get returns based on the performance of the properties in the trust. They're often traded on stock exchanges like the ASX. Investing in an REIT could allow you to get a rate of return closer to the growth in house prices.

Alternatively, you could take a more hands-on approach through fractional investment. This is a relatively new concept in Australia, and it involves companies purchasing properties and then selling shares in the individual properties to investors.

Investors are compensated based on the property's rental returns, and the shares change in value as the property's value changes. BRICKX and DomaCom are a couple companies in Australia offering fractional investment platforms.

The advantage of an REIT is that it gives you exposure to a broad range of properties. The advantage of fractional investment is that it gives you control over the properties you choose to invest in. Both have the potential to generate higher returns than savings accounts.

But there is one huge caveat here. Investments like these can fall in value as well as rise. While your savings are guaranteed to accrue interest, there's absolutely no guarantee that an investment in an REIT or fractional property platform will rise in value. So consider carefully before putting all your deposit funds in an asset class that could put them at risk.

You can look at various A-REITS and other Exchange Traded Products (ETPs) on the ASX website.

5. Maximise your income

It's vital to decrease your expenditures when you're saving. But you might also want to look at ways to increase your income.

You could start by asking for a raise. If you've been at your job for some time and you feel confident in your performance, don't be afraid to ask your boss for more remuneration. You could offer to take on some extra responsibilities in exchange.

If you feel your salary is maxed out right now at your current job, there are still ways to make additional income. It could be time for the fabled "side hustle".

There are a variety of ways you could pull down some extra cash, particularly with the advent of the sharing economy. If you have a car, you could sign up for a ride-sharing service. If you have an extra room in your current house, you could look at renting it out on Airbnb.

You could even consider starting a business on the side. There are some great books out there that can help walk you through the process. In particular, you might want to check out:

What help can I find?

Now that you’ve set your mind on saving your home loan deposit and you’ve got a budget in place, the road ahead can look pretty long.

But you're not alone.

Here’s a quick overview of some of the programs that are in place to help you buy your first home.

First home owner grants

Many states and territories offer help to eligible first home buyers in the form of a grant. This can go a long way toward bolstering your home loan deposit. Each state and territory has its own rules regarding the types and value of properties eligible for the grant.

Check out our detailed first home owners grant guide for more information.

Stamp duty concessions

Stamp duty is a tax imposed by states and territories on the sale of expensive items like real estate and vehicles. As we’ve discussed, it can add tens of thousands of dollars to the cost of a home loan. This means that when you’re saving your home loan deposit, you have to take stamp duty into account.

Fortunately, most states and territories offer some exemptions and discounts for first home buyers. That means if you meet the criteria for the state or territory where you live, you can either get a discount on the cost of stamp duty or avoid paying it altogether.

For more in-depth information about programs for first home buyers, check out our State-by-state guide to the first home owner grant.

Super saver accounts

Remember in Chapter 2 when we discussed using superannuation for a home loan deposit? While you can’t dip into the superannuation you’ve already saved, a new scheme means your superannuation can actually be put to work to help you save your deposit.

The Federal Government recently launched the First Home Super Saver Scheme. Under this scheme, starting 1 July 2017 you can make voluntary salary sacrifices into your super for the purpose of saving a home loan deposit.

You’re allowed to salary sacrifice up to $15,000 per year, and $30,000 total. The benefit of this is that the contributions you make are taxed at 15%. In all likelihood, this will be a much lower rate than the marginal rate at which the rest of your income is taxed.

The earliest anyone can withdraw from the scheme is 1 July 2018. Once you do withdraw, the savings are taxed at the marginal rate, minus a 30% offset. If your superannuation fund has gained in value since you started making Super Saver contributions, the earnings on your Super Saver will be calculated at the 90 day Bank Bill Swap Rate plus 3%.

If this all sounds confusing, don’t worry.

The gist of it all is that you can have money taken directly out of your pay and put into a special account to help you save for a home loan deposit. This money is taxed at a lower rate than the rest of your income. Because of this, when you withdraw the money you’ll likely come out ahead in comparison to the same amount deposited in a traditional savings account.

How far ahead are you likely to come out? Fortunately, the government has provided this handy calculator to estimate how much better off you’ll be putting money into your Super Saver account.

Keystart and HomeStart

If you live in Western Australia or South Australia, there are a couple of unique options that could help you get into the housing market. Keystart is an initiative sponsored by the WA government, while the South Australian government sponsors HomeStart.

  • Keystart. Keystart has a variety of low deposit solutions to help Western Australian homebuyers. The organisation has low-deposit home loans specific to the Perth metro area, some with deposits as low as 2%. It also has loans geared toward buyers in regional areas, solo parents, indigenous Australians and borrowers on the Disability Pension. The loans are income tested, so head to Keystart's website to see if you're eligible.
  • HomeStart. HomeStart offers low-deposit home loans to eligible South Australians. Borrowers who qualify may be able to get into the property market with as little as a 3% deposit. The lender also has loans designed to boost buyers' borrowing power by up to $45,000. Just as with Keystart, HomeStart loans are income tested. Head to their site to see if you qualify.

What do I do with my deposit once it's saved?

If you’ve put in the hard work, tightened your belt and finally saved up a deposit, congratulations! You’ve overcome one of the single biggest hurdles to homeownership.

Now what?

Once you’ve got that chunk of cash sitting in your account, how do you actually turn that into buying a home?

In this part of the guide we’ll explore the steps you need to take to make your home-buying dream a reality.

Getting pre-approval

Before you go house hunting in earnest, it might be useful to get home loan pre-approval. Pre-approval will help you get a handle on the kinds of properties you’ll be looking for and how far your home loan deposit will go.

What is pre-approval?

Pre-approval, or conditional approval, is the very initial stage of your home loan process. This happens when you submit your home loan application and supporting documents to verify your identity and income, and the bank tells you how much it will be willing to lend you.

Now it’s important to note, pre-approval is really just the lender saying that, given the information you’ve provided, you can borrow a certain amount. It’s the lender’s first impression of your application. It’s highly likely that the lender has just run your application through computer models to spit out an amount you’d be likely to qualify for. In many cases, a human being hasn’t actually assessed your application.

Read our complete guide to pre-approval.

Why should I get pre-approval?

There are a few reasons why it’s important to get pre-approval before you start looking for a property:

  • It gives you a good idea of the price range you’ll be looking at. If you’ve got a $100,000 deposit saved and the bank says they’ll approve a $600,000 home loan, you probably don’t want to waste your time looking at million dollar properties.
  • It lets you know how far your deposit is likely to go. As in the example above, if you’ve got $100,000 on hand and a bank says it will lend you $1 million, you have to decide how expensive a property you feel comfortable buying. Are you happy to have a deposit of 10% or less and end up paying for LMI, or will you look for a cheaper property? Do you have enough to cover stamp duty? Pre-approval helps answer these questions.
  • Pre-approval is a handy weapon to have when you go to auction or make an offer on a house. If you’re pre-approved for a certain amount, sellers know you’re serious. They can feel more confident that, if you make an offer on their property, you’ll actually be able to get a home loan to cover it. This can give you a serious edge on other potential buyers.

Finding a property

After you've gotten pre-approval and have some idea of the price range you'll be looking at, it's time to look for properties. The best place to start might be getting an idea of the area where you want to buy.

This is where tools such as domain.com.au and realestate.com.au can come in really handy. In addition to property listings, both sites also offer suburb data. You can search to find profiles of different suburbs that include not only median price data, but also data about schools, transportation, amenities and even things like median age and education level.

Pinpointing the area in which you want to buy will narrow down your property search. Now you can focus on finding a property that fits your needs. You'll need to make decisions like whether you want a house or a unit, how many bedrooms you're after and whether you want a property you'll need to do some work on or one that's ready to move into.

Going to auction

Auctioneer's hammerOnce you’ve got your deposit, home loan pre-approval and an idea of your price range and the type of property you're after, it’s time to go house hunting. This can be a pretty stressful process, and in all honesty you’re likely to lose out at a few auctions before you finally score a home. Don’t get discouraged, and don’t give up. You’ve come this far after savings your home loan deposit. You’re now close to your home-buying dream.

How to prepare

Before you attend an auction, make sure you prepare yourself by learning everything you can, not just about the property, but about the auction process.

Head to some auctions as a spectator to get a feel of the kinds of buyers you’ll be competing against, what the bidding process is like and what you can expect when you get to auction. This way, when you attend for a property you actually want to buy, you’ll feel much more confident. It also helps if you have a good feel for the property and its potential price range. Look for similar property sales in the area ahead of the auction.

Tips for securing the winning bid

Once the bidding starts, there are a few strategies you can use to improve your chances.

  • First, start low. Don’t be overly eager, since that might cause you to inflate the property’s price.
  • Second, know your limit and stick within it. Pre-approval will give you a good idea of the size of home loan you’re likely to get, and your own budgeting will show you how big a repayment you can comfortably handle. Don’t be drawn outside your comfort zone and potentially put yourself in mortgage stress.
  • Third, call out your bids with confidence. Make sure to let other bidders know you’re not going to be scared off.
  • Finally, don’t rush. Taking some time between bids can put a bit of pressure on the sellers, particularly if they’ve set their reserve too high.

Paying your deposit

Money in envelopeIf you’re fortunate enough to win at auction, it’s finally time to put that home loan deposit to use. So, what exactly do you do with it once it’s time to pay?

When do I pay?

You’ll need to pay your deposit immediately after the auction. This means you need to attend the auction with your payment ready. This is generally around 10% of the purchase price. Also, make sure you sign contracts when you hand your deposit over. Until the contracts are signed, the seller technically has the right to accept another offer.

What payment form should I use?

You can use either a personal cheque or a bank cheque. Some sellers might prefer a bank cheque. Obviously, the problem with this is that you won’t know the final purchase price until after the auction, and so won’t know the amount you need to write on the cheque.

Fortunately, most banks will issue a counter cheque with the name and amount left blank. This means you could attend multiple auctions without having to get a new cheque issued, and only fill out the name and amount once you win.

If you have money temporarily tied up somewhere else, such as in a term deposit, you may also consider a deposit bond. A deposit bond is a guarantee issued by either your lender or a third party that covers up to 10% of the purchase price of the property, and guarantees the vendor funds in the event that you don't complete the sale.

Deposit bonds do charge fees, so make sure you factor this in if you decide to use one. Also, you'll need to make certain the vendor of the property you're buying will accept a deposit bond. You can learn more about the ins and outs of deposit bonds here.

What if I change my mind after I paid the deposit?

Thankfully, most states and territories offer cooling-off periods. This means you have a set amount of time to change your mind and recoup most of your deposit.

Note that we said “most” of your deposit. This is because you will have to forfeit some of it to compensate the seller for the time and trouble of re-listing the property.

These cooling-off periods vary from state to state, as does the amount of deposit you have to forfeit. Here’s a rundown:

  • ACT. In the ACT, you have five business days to change your mind. You’ll forfeit 0.25% of the purchase price of the property.
  • New South Wales. Like the ACT, the cooling-off period in New South Wales is five business days, and you’ll forfeit 0.25% of the purchase price.
  • Northern Territory. In the Northern Territory, there’s a four business day cooling-off period, but only if you aren’t represented by a conveyancer or solicitor. Fortunately, you won’t forfeit any of your deposit.
  • Queensland. Queensland also has a five business day cooling-off period and penalises you 0.25% of the purchase price.
  • South Australia. South Australia has a very short cooling-off period of only two business days, but buyers only forfeit a maximum of $100.
  • Tasmania. If you buy a home in Tasmania, you better be sure you’ve made the right decision. The state doesn’t enforce a cooling-off period, which means a seller would have the right to force you to proceed with the sale.
  • Victoria. The cooling-off period in Victoria is three business days, and you’ll forfeit 0.2% of the purchase price.
  • Western Australia. Like Tasmania, Western Australia does not have an officially enforced cooling-off period.

Can I skip the deposit completely?

If you’ve read our guide and saving a deposit still doesn’t seem feasible, you don’t necessarily have to throw in the towel on your homeownership aspirations. You might just have to get more creative in how you go about achieving them.

Here’s a look at how to get into the property market if a home loan deposit in your city is out of reach.

Rentvesting

Rentvesting is the concept of entering the housing market as an investor while continuing to rent or even live at home. Sure, this still means you’ll have to save a deposit, but it could be a significantly smaller deposit.

For instance, let’s look at our example again. If you live in Sydney, that $174,460 deposit is pretty daunting. But what if you decided to invest in a market like Hobart, which has seen 5.8% price growth over the last year? The median dwelling price in Hobart is a much more affordable $350,000. In this scenario, a 20% deposit is going to set you back $70,000, while a 5% deposit is a much more manageable $17,500.

Saving $17,500 is a lot less scary than saving $43,615.

The idea behind rentvesting is you can use your investment to generate cash flow, and eventually sell it for a capital gain. If your capital gain is strong enough, you might be able to use it as a deposit on a house you actually want to live in. Learn more about rentvesting in our detailed guide.

Guarantor home loans

Guarantor home loans are a type of no-deposit home loan where your parents or another immediate family member offers their property as security. This means that, instead of paying a deposit, your family member signs a contract stating they’ll be responsible for your home loan if you default on it. They use the equity in their property to secure the loan (equity is just the difference between the amount their house is worth and the amount they owe on it).

If you have a parent or close family member willing to be your guarantor, you can potentially avoid a deposit altogether. You can also avoid paying lenders mortgage insurance as the size of the deposit is determined by the equity your family member is putting up, not by any cash you have.

Without a guarantor

Guarantor graphic1v2

In this example, the borrower takes out a loan with a 5% deposit and must pay LMI fees on a 95% LVR home loan.

With a guarantor

Guarantor graphic2v2

In this example the borrower has a family guarantor who puts a portion of their property up as security. The borrower then only needs to borrow 80% from the bank.

Obviously, there are some very serious factors to consider here. If your parents agree to be your guarantor and you default on your home loan, they’ll be on the hook for it. If they’ve put their own home up as security, that means they could lose their home if things go seriously wrong. Make sure you and your guarantor get legal advice first.

The good news is that your guarantor will be released from their contract when you’ve made enough repayments to cover the amount they’ve guaranteed. This is why you might want to opt for a home loan that allows you to make unlimited additional repayments so you can release your guarantor as quickly as possible.


So after working your way through finder.com.au’s Definitive Home Loan Deposit Guide, you’ve seen what to save, how to save, what to do with it and even how to get into the housing market if a home loan deposit is in the too-hard basket.

The only thing left to do is to start putting that deposit together and work your way toward your home loan goals. Happy saving.

Need a mortgage? Start comparing loans for first home buyers

Rates last updated November 13th, 2018
$
Loan purpose
Offset account
Loan type
Repayment type
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.59%
3.61%
$0
$0 p.a.
90%
Get a low interest rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online. Available with just a 10% deposit.
3.59%
3.59%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
3.57%
3.58%
$0
$0 p.a.
80%
Get a very low interest rate and avoid big fees. Apply online for full approval in under 30 minutes and add a 100% offset account for $10 a month.
3.74%
3.74%
$0
$0 p.a.
110%
Pay no deposit or LMI and get a discounted rate with this family pledge loan. Requires a family member to act as guarantor. NSW, Qld and ACT only.
3.64%
3.66%
$0
$0 p.a.
80%
A simple mortgage with a competitive interest rate and no application or monthly fees. Borrow up to $2000000 from a convenient online lender.
3.54%
3.57%
$0
$0 p.a.
80%
A competitive variable essentials rate mortgage targeting first home buyers. Requires a 20% deposit.
3.68%
3.70%
$0
$0 p.a.
80%
This loan offers a competitive variable rate and a 100% offset account to help save you on interest repayments.
3.68%
3.82%
$0
$10 monthly ($120 p.a.)
80%
Get double Velocity Frequent Flyer Points with this mortgage to spend on flights and more (for a limited time, subject to eligibility requirements). Redraw facility available on this variable rate home loan. Competitive interest rate.
3.59%
4.00%
$845
$350 p.a.
90%
Get a low variable interest rate and buy a property with just a 10% deposit. 100% offset account attached.
3.69%
4.86%
$0
$395 p.a.
90%
Special discounted rate for first home buyers. Start your home buying journey with 2 years of fixed repayments at a competitive rate plus package discounts. Available with a 10% deposit.
3.59%
3.99%
$600
$395 p.a.
95%
Get interest rate discounts and waived fees on this package loan with a 100% offset account.
3.87%
3.91%
$600
$0 p.a.
95%
A home loan with no ongoing fee and a redraw facility that you can borrow up to 95% LVR.
3.74%
3.74%
$0
$0 p.a.
80%
A basic owner-occupier home loan with a low variable rate that requires a 20% deposit.
3.87%
3.91%
$0
$10 monthly ($120 p.a.)
90%
Get Velocity Frequent Flyer Points at settlement, monthly and every three years, plus the option to make up to $10,000 a year in extra repayments.
3.68%
3.70%
$0
$0 p.a.
80%
A competitive variable rate mortgage for owner occupiers that comes with a no fee debit card with a $5,000 limit.
4.29%
4.26%
$0
$0 p.a.
95%
A competitive 3-year fixed rate loan with a high max insured LVR.
3.69%
4.93%
$600
$0 p.a.
95%
Competitive rates for fixed for 3 years with no ongoing fees.
3.79%
3.79%
$0
$0 p.a.
80%
Access an offset account and pay no application or ongoing fees on this special variable rate for owner-occupiers.
3.49%
3.52%
$500
$0 p.a.
95%
This mortgage combines a very sharp interest rate with a 100% offset account and it's available with a 5% deposit.
3.85%
3.85%
$0
$0 p.a.
80%
Low fee loan with extra repayments. Pay no application and ongoing fees and take advantage of split and redraw options.
3.67%
3.72%
$600
$0 p.a.
80%
Family guarantee option available. Enjoy flexible repayments and a low minimum loan amount.
3.59%
4.14%
$395
$0 p.a.
80%
A one year fixed rate offer with no ongoing bank fees.
3.54%
3.58%
$0
$0 p.a.
80%
Get a competitive rate, save on fees and access a 100% offset account plus redraw facility. $900 cashback offer.
3.59%
3.58%
$0
$0 p.a.
80%
Apply online and get fast approval for this fixed rate, low-fee loan with redraw facilities. Add a 100% offset account for a small fee.
3.72%
3.74%
$0
$0 p.a.
80%
Save on interest by taking advantage of a 100% offset account along with no ongoing fees or application fees.
3.69%
4.12%
$0
$395 p.a.
80%
Unlock a range of savings with this competitive package home loan offer. Offset account and redraw facility included.
3.74%
4.13%
$0
$349 p.a.
90%
Get a sharp rate plus package discounts and a 100% offset account.
3.72%
4.10%
$0
$395 p.a.
80%
New borrowers or refinancers can get a discounted rate with this package loan. Bonus $1,500 cashback for refinancers.
3.64%
3.59%
$0
$0 p.a.
80%
Fast, 100% online application process. Very limited fees. Optional offset account (with fee).
3.84%
3.84%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a free redraw facility with this innovative online lender.
3.49%
4.57%
$0
$395 p.a.
90%
Loans over $150000 get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
3.62%
3.62%
$0
$0 p.a.
95%
A low deposit mortgage with a competitive rate and plenty of flexibility. QLD residents only. Eligible borrowers can get a 15% discount on home and contents insurance for the life of their loan.
3.69%
4.38%
$0
$0 p.a.
90%
A discounted 1 year fixed rate for home buyers that's available with a 10% deposit. NSW, QLD and ACT residents only.
3.89%
5.05%
$595
$0 p.a.
90%
Investors can take advantage of a short term fixed rate with no application or ongoing fees.
4.17%
4.21%
$600
$0 p.a.
95%
Variable rate home loan from one of the big 4 banks. Available with just a 5% deposit.
3.87%
3.92%
$600
$0 p.a.
95%
A low deposit mortgage for aspiring home owners. Fees are low and you can make extra repayments.
3.88%
3.89%
$0
$0 p.a.
90%
Save on interest with a free 100% offset account and buy your property with just a 10% deposit.
4.39%
4.78%
$0
$395 p.a.
95%
A low deposit package home loan. Combine your loan to get discounts on your interest rate and other NAB financial products.

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*The loans in the table above may also be available for non-first home buyers. But first home buyers may find these loans useful because many have low interest rates or max insured LVRs above 80%, meaning you can get them with a smaller deposit.

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UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000

Take advantage of a low-fee mortgage with a special interest rate of just 3.59% p.a. and a 3.59% p.a. comparison rate.

loans.com.au Essentials - Variable (Owner Occupier, P&I)

A competitive interest rate home loan with interest only options. Interest rate 3.64% p.a.
comp rate of 3.66% p.a.

Tic:Toc Live in Loan Variable Rate - Principal & Interest

Get a very low interest rate and avoid big fees. Apply online for full approval in under 30 minutes and add a 100% offset account for $10 a month.

HSBC Home Value Loan - (Owner Occupier P&I)

Get a low interest rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online. Available with just a 10% deposit.

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