How to save for a house deposit
Strategies, tips and clever ideas to help you get a deposit together and buy your home.
Saving the deposit to buy a property can takes years. But with financial discipline and some creative tips you can build up a deposit for your home loan faster than you think.
Here's what you need to do to.
1. Determine your deposit size
The typical house deposit is 20% of the property price. But many lenders will accept a deposit as low as 10% or even 5%.
Just be aware that a smaller deposit means borrowing more money and therefore paying more interest over time. Also, when your deposit is less than 20% you may need to pay lenders mortgage insurance (LMI). This can add thousands to your costs.
Your deposit size
There are two parts to a property purchase:
- The deposit. This is the amount you must have saved to buy the property.
- The loan amount. This is the money you borrow.
Here's an example:
- Property price: $500,000
- Deposit: $100,000 (a 20% deposit)
- Loan amount: $400,000
In this example, buying a $500,000 property means a 20% deposit of $100,000. But if you went for a 10% deposit you'd only need to save $50,000 (but you'd have to pay LMI costs).
In short, your deposit size really depends on how much you can afford to borrow and how much you can realistically save.
Do some research
Research areas you'd like to live in and look properties for sale to get some idea of what's on the market. Then look at your income and expenses. You're probably paying rent currently, so use a loan repayment calculator and see what mortgage repayments would look like compared to your rent.
Beyond your deposit (and possibly LMI) there's one more big upfront cost to watch out for: stamp duty. If you're a first home buyer you might get a discount or exemption on stamp duty, depending on where you live.
You can read more on this topic in our state-by-state stamp duty guide, or enter your details into this stamp duty calculator.
2. Get serious about saving
Once you have your deposit goal in mind it's time to get serious about saving. Here are some basic, essential tips:
- Examine your spending. Track your spending using an app like Pocketbook and get a detailed breakdown of what you really spend each month.
- Set a budget. Using your spending breakdown, set a realistic budget and work out where you can make cuts to your current spending.
- Pay off urgent debts first. Get any debt under control as fast as possible. Prioritise high interest debt first: a HECS debt is much less urgent than credit card debt.
- Maximise your savings. Put your money to work while building your deposit with a high interest savings account or consider putting some of your savings in a term deposit.
If you have an asset you could sell, like a car you don't need or some shares, you might consider selling them and putting the money towards your deposit.
3. Get help with your deposit
Beyond saving more and spending less, there are some ways you can scrape a deposit together you might never have considered.
Several of the tips below require family wealth. We understand that this can be a very helpful resource for some borrowers and completely impossible for others. But while not all of the tips below will apply to all borrowers, even just one could be a big help:
- Parental guarantor. If your parents own their home and are willing to guarantee part of your deposit you can avoid LMI and save a smaller deposit. Read our guarantor mortgage page for more information.
- Cash gift. If your parents are able and willing (and we understand this is not often the case) they could provide a cash gift to boost your deposit there. There are just a few rules you need to be aware of.
- Live with parents. If your parents can't provide financial support they might be able to help you save by letting you move back home. Yes, that might sound like a nightmare, but how much easier is saving a deposit without rent?
- First home owner grant. In some states there are cash grants for first home buyers. You usually need to buy a newly built home under a certain price in order to qualify. If eligible, you can use the grant to form part of your deposit.
- Other government help. The federal government's First Home Super Saver Scheme lets you make extra contributions to your superannuation, pay less tax and then use the money as part of your deposit. The First Home Loan Deposit Scheme will allow a limited number of first home buyers to save 10% deposits and get homes without needing to pay LMI. It comes into effect in January 2020.
Watch: How much should you save to buy a house?
More helpful guides for hopeful first home buyers
- Using super for a home deposit
- How to find a cheap home loan
- Tips for first home buyers
- Calculate how much you can borrow
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