January 05, 2016
Tips to help you save for your first home
With housing affordability at a low, first homebuyers are facing special challenges when looking to get into the property market.
Saving the initial deposit for a property is often first homebuyer’s greatest hurdle. The most common sentiments expressed by first homebuyers as to why getting a deposit for a house is challenging are:
- I can’t save much anyway on my current budget
- I’m not sure what I will really need to achieve my goal
- I don’t have anyone close to give me accurate advice and I’m nervous of going to an expert
If first homebuyers seek professional advice and break down the process of saving for a deposit into steps, they can achieve a financial goal that may see them owning their own home.
The crucial factor in making a savings plan work is that you must be able to see that your target is within real reach, within a reasonable time. Otherwise, you simply won’t keep up the savings momentum to make it all work.
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Talk to us or a solicitor, real estate agent, accountant to get the full picture on what you will need to do and achieve to buy your first home. For example, by talking to a mortgage broker you could find out if you borrow less than 80% of the purchase price of your home, you will save yourself thousands of dollars in Lender’s Mortgage Insurance – it may be worth saving a bigger deposit to avoid this charge.
Establish a good saving pattern before buying
If you don’t already have a budget plan in place, create one! If you can follow a budget for a year-long period or more, tweaking it along the way, then you’ll have a strong idea of what money you need to put aside for things that crop up regularly through to once a year. Track your expenses and train yourself to think about where your money is going. Set a budget and cut down on expenditures. Small sacrifices along the way help. For instance using public transport instead of cars/taxis, taking your lunch into work and reducing the number of times you go out during the week.
Start a separate savings account to the one you use on a daily basis so you are not tempted to use it for everyday life. Think of it as a deposit account and choose one that incentivises savings with a high interest rate return such as term deposits and cash management trusts.
Start with a lump sum
Saving is always easier if you have something to start with. If need be, sell some of your luxury goods and anything you don’t need before you start saving. To lessen the hurt make it a fun experience, maybe hold an auction or car boot sale and invite friends and family.
Set yourself a limit
So that saving doesn’t seem like a never-ending ordeal, set yourself a time limit to save for a deposit (say one or two years depending on the goal).
Live at home
If you are lucky enough to have generous parents, this is a great way to save money. Put the money you would be saving on rent aside for your deposit.
Borrow within your means
Make sure you borrow within your means. By speaking to us we can work out what you can REALLY afford to pay as a monthly repayment. Remember you are still young, need to have a life and have fun. Consider additional needs such as new furniture or a new car you’ll need in a year’s time or that overseas trip you’ve been thinking as being two years down the track. Your saving, your sense of achievement, your new property should add to your lifestyle happiness – not be an overburden.
First Home Owners Grant Scheme
If you are eligible, make the most of this government grant. Every little bit helps and this government scheme contributes $15,000 (for newly constructed homes in South Australia) towards the total property cost.
Remember it’s not just the cost of the property that you will be paying. You also need to consider the additional costs of conveyancing, valuation, lender’s application fees, pest/building inspections, government stamp duties, removalists and property insurance. Again, your mortgage broker will help you calculate these costs and set a realistic target based on your budget.
Consider buying outside of where you ‘ultimately’ want to live
Finally, although you probably have an idea of where you would ‘like’ to live, properties in that area may be at a premium. Consider buying in an area that may not be quite as developed (you’ll probably get greater capital growth) or as ‘popular’ as an initial purchase to get into the market – work hard to put a dent in the mortgage, and together with capital growth, you can use your equity to move into the suburb of your dreams later on.
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