Tips to save for a home loan deposit faster
Trying to save for a home loan deposit, but finding it a bit daunting? A lot of the first home buyers we speak to feel a bit overwhelmed by the prospect of saving for a deposit, so here are some clever tips to help you reach your goal sooner.
How much do you need to save?
Traditionally, borrowers have been encouraged to have a 20% deposit to buy a home. This is because the more you’ve saved, the less you’ll have to borrow. A bigger deposit will also help to lower your repayment amounts and pay less interest. If your deposit is less than 20% of the value of the property price you’re looking to purchase, lenders usually charge Lender’s Mortgage Insurance (LMI) to help manage the additional risk they take on the loan. LMI is an additional cost to you but can be included in your loan amount.
While having a 20% deposit is a great goal to have, it’s not completely necessary. Many lenders will provide a loan for first home buyers with as little as 5% deposit. There are other options available if you don’t have a 20% deposit, such as the Australian Government’s First Home Loan Deposit Scheme (FHLDS ).The FHLDS allows eligible first home buyers to borrow for a home loan with as little as 5% deposit, without having to pay LMI.
A great way to boost your deposit.
If you’re not eligible for the FHLDS, the $2,000 Great Start Promotion from Great Southern Bank offers $2,000 to put towards your home deposit – a welcome contribution that may help you save some time. With an extra $2,000 added to your deposit, you could also save on the cost of LMI and reduce interest over the life of your loan.
If you only have a 5% deposit, you’ll need to demonstrate that it’s been genuinely saved. This means if you’re lucky enough to receive a cash gift or bonus before you apply, you’ll still need to show the lender your ability to save over time. Some lenders, like Great Southern Bank, will consider up to six months of rental statements to show that you can make repayments.
Start a savings plan and follow it.
Whether it’s a 5% or 20% home deposit, achieving your savings goals will need a savings plan. The good news is, it doesn’t need to be complicated. It can be as simple as looking at your income and outgoings, then working out how much you can commit to putting aside weekly, fortnightly, or monthly. The challenge is sticking to it! Here are some things to factor into your plan.
Think about a savings account that keeps your money working harder for you by earning interest. For example, you might choose to put some of your savings in an account that rewards you with bonus interest.
Taking away the temptation to dip into your savings can also help your balance grow. The Vault is a clever tool that lets you hide your savings account from view in online banking. It’s like putting the lolly jar at the very back of the pantry. Out of sight, out of mind!
Another smart way to boost your savings is funnily enough called…The Boost . It lets you set an amount that’s automatically deposited from your transaction account into a linked savings account with every purchase you make. It’s like saving as you spend!
Don’t forget to leave some extra money aside to treat yourself every once in a while. A home deposit is important, but it shouldn’t mean an end to having fun.
Beware of ‘buy now pay later’ schemes
Buying something now and paying it off later in instalments can be tempting, especially when you spot something you like in the shops or online. On the surface, you might think that paying this way will be better for your savings plan by spreading out the cost, but it comes with some dangers .
Remember, that buy now pay later schemes might appear on your credit report – one of the things a bank scrutinises when reviewing your loan application. And while it might not seem like you’re borrowing money, these arrangements are still considered liabilities and will need to be included on your home loan application.
Even if there’s no interest being charged, you may have to pay extra fees or charges. Late and missed payments also incur fees and may affect your credit score.
A major trap for many people is that the schemes allow them to spend money they often don’t have and buy things they may not need.
Can you avoid stamp duty?
Reaching your goal for your deposit amount can become a lot easier if you can avoid big expenses associated with buying your home. Stamp duty is a good example. It’s essentially a tax that home buyers need to pay when purchasing a property.
But in some instances, if the home you’re buying is below a certain value, you don’t have to pay stamp duty. This can save you thousands, which could be put towards your deposit instead.
Have a look at the stamp duty rules in your state to see what’s what. Then think about how you could meet the criteria for a stamp duty exemption. It might mean thinking about a more affordable suburb, or a home that’s a bit more modest in size or features (do you really need that walk-in wardrobe?).
Be realistic. Your first home probably won’t be your home for life and making changes to your expectations to avoid stamp duty can make getting the keys to your first home that bit more achievable.
Achieving your dream of home ownership isn’t unreachable when you follow a few of these simple tips.
Important information: Please note that this is only intended as a general guide in relation to issues you may want to consider when saving for a home deposit. It is not intended to be an exhaustive list of all relevant issues and does not take into account your personal needs and financial circumstances. You should take into account your own particular circumstances, and obtain independent expert advice where needed, before proceeding. Examples quoted are indicative only for illustrative purposes.