Everyone wants to live in their own house one day – it is the great Australian dream. But for many apprising homeowners, saving money for a home deposit can seem like an uphill battle. With the living costs showing no signs of going down, you may struggle to set aside money for the down payment.
But with the right strategy, you can reach your goal faster. As experts on home finance, we at My Money House believe that the best way to save for a home deposit is to set your financial goals. It helps you save money without stretching your resources too thin.
Let’s walk through the insights to make this journey smoother.
Things to Do Before You Start Saving Money for A Home Deposit
Before you even think about saving money for a home deposit, you’ve to do a few other things, such as working out where you want to live, getting your home loan pre-approved, and thinking about financial aid.
Here’s is quick lowdown:
1. Decide Where You Want to Live
Working out which suburbs you would like to live in is the first step in your financial planning. Like the rest of the world, property prices in Australia are directly tied to the location. For example, Medindie, Toorak Gardens, and Unley Park are the most expensive suburbs in Adelaide.
You can plan to settle in one of these suburbs. However, we recommend choosing a more affordable suburb that could reduce your home loan deposit amount, especially if you are a first-time buyer.
2. Know What Kind of Home You Can Afford
Once you know where you want to live, decide what kind of home you think you can afford. If this is your first home, don’t set your goals too high and consider that you will probably need to compromise on where you end up purchasing.
This means:
Looking at home options in affordable suburbs like Elizabeth, Davoren Park, and Salisbury.
Compromising on add-ons such as a swimming pool, second garage, or second floor.
3. Figure Out the Size of Your Home
The size of the home will also affect your budget. So, ask yourself, how many bedrooms do you require? How many bathrooms? A large, four-bedroom, two-story house may require a bigger deposit and higher ongoing costs like maintenance and utilities. So, be realistic about the space you need, and save money for a home deposit accordingly.
4. Get Your Loan Pre-Approved
Consider getting your loan pre-approved so that you can find out how much you can spend on a home. It also shows sellers that you’re serious about buying a new home. Lenders will look at your income, expenses, and credit history before giving pre-approval. And since this is what we do, My Money House can assist you in finding the best home loan to meet your needs.
5. Find Out the Deposit You Need
Find out how much deposit you need for the home that you would like to purchase. Typically, lenders in Australia ask for a 20% deposit. However, most lenders, including the big four banks, accept a 5% home deposit if you pay the Lender’s Mortgage Insurance (LMI). Be sure to check with your lender to know exactly how much deposit you need.
6. Learn About Additional Expenses
While home loan deposit is the biggest expense you’ll have to bear, it’s not the only one. You will also need to find out the additional costs of purchasing a home, like stamp duty, conveyance fees, moving costs, and building inspections. These extra costs can add up, so budget for them in advance and avoid surprises down the road.
7. Think About Financial Aids
Find out what government grants like the First Home Owner Grant (FHOG) are available. For example, in South Australia, you can get a $15,000 grant if you purchase a brand-new home instead of an established home. This one-off grant can reduce your financial burden, including the home deposit.
My Money House can assist with finding the best loan that can meet your needs. With as little as a $3,000 deposit, you can purchase your own home or maybe with no deposit you can consider your parents going as guarantor.
How to Save Money for A Home Deposit
Once you’ve finished working your way through the above list, you can start saving money for a home deposit. Here’s how:
1. Work Out Your Income
First, work out how much money you receive monthly. This means checking all your income sources, including your salary, bonuses, cash income, freelance work, or rental income. Knowing how much money you have coming in can help you save faster for a home loan deposit.
2. Check How Much You Spend
The next obvious step is to track your spending for a couple of months to see where your money goes. Check your credit card and debit card statements – How much money do you spend? What do you spend this money on? Keep track of all your expenses, like rent, groceries, bills, and entertainment.
3. Use a Budget Planner
Once you know your income and expenses, figure out your monthly budget. It’s like a balance sheet of your income, expenses, and savings. This helps you see how much you can realistically save each month. It would be worthwhile to review your expenditure on an Excel spreadsheet to work this out. Here is a template that can assist you, or use our online budget planner.
2. See Where You Can Cut Back
Review your expenses for the month. Are there any categories that you can cut back on? Was there any discretionary spending that you could do without? Remember, the best way to save for your home deposit is to cut back on the expenses that you can do without. This is called reducing your discretionary spending.
Here’s how to save money for a home deposit by reducing discretionary spending:
You could reduce your monthly discretionary spending by taking your lunch to work (approximately $200); cutting back on takeaways (approximately $200); taking a bus to work (approximately $80); and not going out to dinner weekly (approximately $200). Already, you have $680 for a deposit, and it only took one month to save this.
3. Increase Your Income
Increasing your income can help you save faster. Find out other ways to increase your income by recycling bottles and cans (in SA, this could be $30 per month); selling your unwanted items on eBay; or doing jobs for cash, for example, gardening, dog walking, babysitting, or house sitting. You might also consider picking up an extra shift at work, freelancing, or starting a side hustle. More income means more money towards your home deposit.
Start Saving Money for a Home Deposit
Saving for a home deposit takes time and dedication. But if you set realistic goals, reduce your discretionary spending and increase your income, it could take 3 to 6 months to save up for a home deposit. Start by deciding where you want to live and how much deposit you need. Then, create a budget and look for ways to save more and spend less. Remember, every dollar saved brings you one step closer to owning your dream home.
My Money House stands with you throughout this journey. We can help you with everything from saving for a home deposit to finding a suitable home loan. Complete this quick online questionnaire to see if you qualify to buy your first home.
If you have questions or doubts, reach out to our expert today!
