Stop stressing about saving for your home and find out the best way to get together the funds you need for a deposit.
Being an effective saver is crucial to buying a home. As house prices rise, it becomes increasingly difficult to save a deposit. While saving for a deposit may seem like a major hurdle to your home ownership dream, it's not an insurmountable one. With a bit of savvy and a lot of discipline, you can put together a deposit to get your foot on the property ladder.
Know how much you need
The amount you will need to save will vary depending on the property value and the lender you select to go with. Most home loans will outline the deposit needed through the Loan-to-Value Ratio (LVR). The LVR is the size of the loan you can borrow compared to the property value. For example, most LVRs are 80%, this means you need a 20% deposit.
However, there are many low deposit mortgage products on the market which require between a 5-10% deposit. For low deposit home loans, however, you will have to pay for Lenders Mortgage Insurance (LMI). LMI is an insurance policy charged on low deposit home loans that protects lenders in case of default. The LMI fee charged will vary depending on your financial provider, but can cost thousands.
Shelling out for LMI isn't the only option for low deposit home loans, though. You also have the option of using a family guarantor. This is where your parents’ or another family member’s property is used as security for your home loan and makes up the shortfall of your deposit. A family guarantor will assist you in entering the property market sooner and help you to avoid paying LMI.
Once you know how much you need to save, you can better plan out how to reach your goal.
Set a realistic budget and stick to it
Proper planning is crucial when saving for a home loan deposit. One of the best ways to save is to use a budget planner. These let you work out how much you can save each week/fortnight and month and estimate how long it will take you to reach your savings goal. You can enter expenses such as bills, food and rent into your planner to give you a more accurate depiction of your saving situation.
Another good tip to help you save is to make sure you set aside your savings first when you’re paid. When your income comes in, make sure you pay yourself first and put aside your savings into your savings account before you pay for anything else. Instead of only saving what you have remaining at the end of each week or month, you can increase your savings enormously by putting your money away before you pay for expenses.
However you choose to budget, it's crucial to stick to your plan. Keep your goal in mind, so when you're tempted to deviate from it you can easily remember your motivation for saving. The small expenses add up quickly, so keep track of your spending and be price conscious. Before you go shopping, make sure you write a list and stick to it.
Maximise your savings
High interest savings accounts are a great way to grow a deposit. For these accounts, you will typically need to meet minimum conditions such as deposit requirements, minimum account balance and no withdrawals to get a high interest rate. These accounts encourage you to deposit each month, make no withdrawals and receive a high interest rate to help you save.
Another way to grow your savings is through a term deposit. With term deposits, you deposit a lump sum into a term deposit account, select a term length and get an interest rate. You will have to keep your funds in this account until the term is up. When the term is over, you can withdraw your money and your interest.
Tips for increasing your savings
- Increase your earnings. If you are fortunate to have some extra time on your hands, why not try picking up some extra work? There are always freelancing opportunities, night shifts or even weekend work spots up for grabs. Just working one extra shift on a Saturday can increase your savings.
- Keep an emergency fund. Some people are put off of saving by the fear that something will inevitably come up that they need money for. Starting an emergency fund will ensure you can save and also have money for those unexpected things in life.
- Monitor your bills. Keep an eye on your bills, such as electricity, phone and water, and look out for opportunities where you can cut back. For example, if you’re spending a lot on electricity, pay more attention to making sure you turn off lights and switching off the heating or the television. If you aren’t using the full value of your phone plan, consider moving down to a cheaper plan.
- Compare prices. Before buying anything, do some research to make sure you are getting the best price. This holds true both for consumer goods and utilities. Compare electricity and gas providers, internet, mobile plans and retailers to make sure you're getting the cheapest price available.
- Clean out your home. Few people realise how many superfluous things they own until they do a good clean out. With many online buying and selling sites available, you could potentially sell some old items you no longer use and put the money toward your savings.