Saving up for your first home deposit can seem impossible. With living costs growing and house prices soaring, you can feel like you’ll never be able to afford a place of your own. Luckily though, there are ways you can save up faster, first home-owner grants (FHOG) that can give you a boost and financially savvy tricks that can let you reach your savings goals quicker.
One strategy that has worked for many people is to open a second savings account just for your deposit and start every pay cycle by putting a fixed amount into that second account. Then you’re not coming to the end of every pay cycle only to discover you’ve spent everything already and have nothing left to put aside for your new home. You can easily automate these payments online too so you can ‘set and forget’, knowing your savings are growing without the hassle of doing it manually.
A good way to assess where your money goes is to start logging every transaction you make. By recording your expenditure, you can easily review your spending habits and see where there are opportunities for you to cut back. Do you really need two coffees a day? Could you start taking the bus, rather than paying for parking? Every small expense can add up to a big expense, so make some time at the end of each month to understand how you can spend more ¬wisely. This also helps to show the bank that you have a good savings history and are financially responsible, making them more likely to lend to you when the time comes.
Your separate savings account can do you even more favours if you set up a high-interest account. Compare which banks offer the best interest rates for savings accounts and make your money work harder for you. Once you have a big chunk saved, you could also start thinking about a term deposit. Unlike a savings account, a term deposit makes it harder to access your money without a penalty but the interest rate is a lot better. You’ll also get rewarded the longer you leave your money sitting there which gives you a good incentive to keep saving.
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If you haven’t already, you should start tackling any unpaid debts so you can use that money you were paying in interest to put towards your savings. Reducing or eliminating any credit card debt or personal loans not only helps you reach your savings goals quicker, but will also help increase your borrowing power when it comes time to getting a home loan. If you have more than one outstanding loan, you can chip away at them quicker by consolidating them. If you are carrying debt on a credit card account, it is also worth considering switching to a credit card provider that offers a lower interest rate so you can clear your debt faster. The Australian Securities and Investments Commission has some great advice on how to choose a credit card that can really help here.
A big mistake first home buyers make is they either overestimate or underestimate how much of a deposit they need to save. Some miss out on great first home opportunities because they think they must save up a 20% deposit, whereas some miscalculate entirely and forget to budget in the other costs such as stamp duty. Ideally, it’s better if you can save a 20% deposit to avoid Lenders Mortgage Insurance (LMI), but for most, this can take years of saving. Depending on how the market is trending, it’s worth considering only saving 5 – 10% of your deposit, paying for Lenders Mortgage Insurance and buying before market prices increase.
Most states do offer decent concessions to first home buyers so it’s easier for them to get into the property market. In Victoria, a $10k First Home Owner Grant (FHOG) is available when you buy or build your first home. If you decide to build in regional Victoria, that amount increases to $20k but there are a few restrictions. These can include the property needing to be brand new, valued at under $750k and it can’t be an investment property. There are also other exemptions too on stamp duty, off-the-plan concessions and principal place of residence (PPR) concessions. You can find all the details and what you’re eligible for on the Victorian State Revenue Office First Home Owner website.
Although you’re technically only meant to get access to your super at 65, you can withdraw funds if you’re buying your first property. The Federal Government’s First Home Super Saver Scheme (FHSS) lets new buyers save up for a deposit within their super by making voluntary super contributions they can later withdraw. You can withdraw up to $30k but there are a few restrictions on who can apply for the scheme. This approach can give you a bigger return in a pretty short amount of time, so it’s a useful way to save big.
Another mistake many first home buyers make is wanting to buy their dream house now. It could be a penthouse apartment in an affluent suburb or a two-storey home with a pool, but all this can cost you big. Buying your first place is rarely the house you’ll live in forever, so if your dream home isn’t in your current price range, you may be closer to it in the future. Although it’s tough trying to get into the property market, once you’re in, it’s easier to upgrade. This is because you can use the growth in your property’s equity as a launching pad to buy something better.
Saving up for your first home does take time, but the sooner you make a conscious effort to prioritise saving for a deposit and adjusting your spending habits, you’ll be better for it.