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How to save for a home deposit

Scraping the funds for a home deposit isn’t something that happens overnight. For many of us, it takes a great deal of financial and emotional discipline in the form of getting into good money-saving habits and also by having the persistence to meet a long-term savings target, and making personal sacrifices along the way.

Buying real estate in Australia, and especially in any of Australia’s capital cities, is expensive and completing the required deposit for a home loan [1] is just a snippet, or the beginning, of what first home buyers need to budget for.

Along with the home deposit, other upfront costs such as valuation, legal, inspection, mortgage establishment fees, and insurance [2] will form the bulk of costs required to secure a property. And then there’s the ongoing costs related to holding a property such as for repairs and maintenance, renovations, upgrades, taxes, and of course, your ongoing mortgage repayments.

New research by finder.com.au [3] found that one third of Australians spend over five years saving for a deposit while on average, people take 3.7 years to complete a down payment. It turns out first home buyers in Queensland (QLD) and New South Wales (NSW) take the longest time of nearly 4 years to muster up the funds for a deposit.

What’s concerning, however, is that 11% of Australians take over 10 years to come up with a deposit, which raises questions about our money-saving habits.

For a full-documentation home loan [1], you should aim for at least a 20% down payment so you don’t have to pay lender’s mortgage insurance (LMI). Of course, getting your parents to go guarantor or entering into a co-borrowing arrangement can make the deposit-saving journey a little easier to navigate, but this isn’t always an option.

To grow your deposit savings and get one step closer to securing finance [4] (and a property), here are 5 things to keep top of mind:

1. Set yourself a realistic savings target & plan.
Once you’ve reviewed properties and got a feel for what you can afford, set your savings goal and come up with actionable ways to achieve this goal. Bearing in mind that you should try to save 20% of the purchase price, if you’re looking at a property valued at $550,000, you’d need to save $110,000. This gives you a starting point of what you need to save for a deposit (but remember, there are a suite of other associated costs that will also crop up). Sit down with an accountant or a financial broker to understand how you can realistically save the funds, and the timeframe in which you can save this amount.

2. Cut back on unnecessary expenses.
Trimming your existing costs and expenses is an easy way to boost your savings balance. Review your budget and identify areas where you can cut back. For instance, you may be able to switch to a more affordable utility or internet provider or you may decide to shop at a budget supermarket to save on your grocery spend.


3. Clean up your debt.
Debt can be a big hindrance when it comes to increasing your savings and improving your financial position, so carry out a financial audit, and see how you can reduce your debt. For instance, if you’re struggling to service your debt, then you may want to consolidate debt so it becomes easier to manage. A good rule of thumb is to always pay off high-interest debt first, so if you’re servicing credit card [6] and mortgage debt, prioritise the credit card debt as this will have a much higher interest rate compared to your home loan. If you’re experiencing financial difficulty, or you’re unsure how to manage your debt, visit the ASIC website [7] for some useful tips [8] and support.

4. Be strategic with your hard-earned cash.
As you start to grow your savings balance, be smart about how to make the most of it. For example, you may want to put it in a high-interest savings account [9] (keep an eye on the minimum deposit requirements to earn the maximum interest), or even a term deposit account [10] to lock away your funds for a guaranteed return. If you use a savings or transaction account, set up an automatic transfer so you meet the conditions required to earn the maximum variable rate.

When it comes to applying for a mortgage, making regular deposits into a savings account will give your application a push in the right direction as it will demonstrate to the lender that you’re a responsible borrower and you have financial discipline.

5. Be inventive about how to boost your earning capacity.
Whether it’s negotiating a pay rise, renting out a spare bedroom in your property, or using your skills outside your workplace, there are many ways you can make extra cash if you put your mind to it. Consider selling any unwanted items, such as your car or a laptop, to give your bank balance a healthy boost.

Another sensible way to increase your deposit savings is to seek out better financial deals. If you’re not getting a good deal on your mobile phone or your internet, consider switching to a low-cost provider to save on these bills.

When it comes to comparing finance options [4], keep an eye out for a loan with competitive interest and minimal fees such as application or account-keeping fees. Remember there are several money-saving features you can benefit from, including the ability to make extra repayments, a 100% offset account, and a redraw facility, which can lower your interest payable if you use them the right way.

You could be tied to your mortgage for 25 or 30 years, and really, coming up with a deposit is just the beginning. However, a strategic and well thought-out savings plan will put you in good stead to realise your savings goal and to enter the property market sooner than expected.

Happy saving!