Saving for your first home? What you’ll need – and how to get there sooner
Owning your own home is the Aussie dream. Yet, as with all big things in life, there’s a lot to consider – especially if you’re buying for the first time. From savings and stamp duty to fees and fixed rates, there’s a lot to get your head around. We’ve already helped match thousands of first-time buyers with their dream home. Now, over the next few months, our three-part series will give you everything you need to know about saving for, financing and buying your first house. Below, mortgage broker Dan Hustwaite provides his top saving tips – and answers your burning first-time home buying questions.
Get serious about budgeting
As a rule of thumb, property prices increase year on year.
Given that – and the strength of Melbourne’s real estate market – the sooner you start saving, the stronger your finances will be when it’s time to buy.
“The key to a first-time home buyer looking to save is to make sure you’re working to a budget,” says Dan, Director of mortgage brokerage Aqua Financial Services. “You need to be putting money aside each week, fortnight or month, in line with your pay cycle.
“Draw up a timeline so you know exactly what you’ll need to save to buy your first home: be it in six months, twelve months or two years.”
Essentially, saving for your first house requires willpower and accountability – though, as Dan acknowledges, it’s not always easy.
“Your savings need to be going into an account that’s not accessible: that you can’t dip into via an ATM or by tapping a card. You should still be able to use those funds in an emergency. But they need to be locked away to a point where you can’t use them for those impulse purchases.”
Play the long game
Even with a strict budget (and stricter self-control), saving for your first home won’t happen overnight. But there are some ways you can speed up the process.
For one, you can take advantage of the ATO’s first home super saver (FHSS) scheme. This allows you to make voluntary contributions to your super fund – so, extra payments on top of those already coming out of your salary.
When you’re ready to buy, you can release these funds from your super (up to $15,000 a year, to a total of $30,000). Along the way, you’ll have benefited from your super’s low-tax environment – so your savings will have gone further.
Better still, you can automate this form of salary sacrifice with your employer. That means it never hits your account – so there’s no temptation to touch it!
Save more. Pay less
To purchase your first home in Victoria, you’ll ideally need a deposit of 20% of the home’s value upfront.
You won’t always require a fifth of the property’s worth – and some lenders are willing to accept less. But if you can raise it, Dan points out, a 20% deposit offers big benefits.
“As soon as you borrow more than 80% of the property’s value, an additional fee applies. This is called lender’s mortgage insurance (LMI), and it’s an insurance policy to cover the banks and lenders.”
LMI – a one-off, non-transferrable cost – is a double-edged sword. It allows you, in effect, to borrow beyond the standard 80%. But it’ll also add to your initial costs when buying your first home.
The more capital you can provide upfront, the lower your LMI will be. Which makes it even more important to save!
Call in the cavalry
Struggling to save the cash required for that all-important 20%?
For some, Dan notes, there’s another way they might borrow above the typical threshold. And it’s a line of credit as old as time itself: The Bank of Mum and Dad.
“One option that’s becoming increasingly popular – simply because of the cost of property in Melbourne – is parents becoming guarantors to assist their children.
“This allows the guarantor to put up some equity that they have in property, meaning the buyer can borrow up to 95% (or even 100% or 105%) of the property’s value.
“The parent’s income doesn’t count towards increasing the loan amount, though. And the borrower will still need to demonstrate they can pay the loan based on their own income and expenses.”
Of course, there are other, more traditional ways that Mum and Dad can help. That could be supporting you with the deposit for your first home. Or simply granting you space under their roof.
“If you’re lucky enough to be able to stay at home while saving for a deposit,” Dan adds, “I think you need to make the most of the opportunity.
“Once you move out of home, the cost of living is high. So you want to build your deposit while your expenses are at a minimum.”
Sidestep the splurges
When you’re saving for a deposit on your first home, watching your expenses is vital.
But avoiding unnecessary splurges – and sidestepping unnecessary debt – is just as important for building your credit rating, too. So that when it’s time to apply for a mortgage, your financial records don’t throw up any surprises for the lender.
“Now more than ever, banks analyse what you’re spending your money on. They’ll look to verify your savings history, and at how you’ve used your disposable income.
“The banks have the potential to question your day-to-day spending – so it’s crucial that you’re not wasting your money on things you don’t need.”
Enjoy the journey
Penny pinching isn’t the most palatable of pastimes.
But saving effectively isn’t about putting your whole life on hold. You should approach it holistically: understanding what you’re earning, how you’re spending it, and where you can trim it back.
“Saving for a deposit requires discipline and dedication,” Dan notes, “but you still need to be able to enjoy yourself along the way.”
You can still allow yourself a brunch out with friends, or a ticket to see your favourite band. But remember to keep tabs on how this will affect your savings – and that you’re sticking to your budget.
Because when it comes to buying your first home, there’s plenty to look forward to about the destination.
Why not enjoy the journey, too?
In Part Two, we’re back with Dan to walk you through the next step of buying your first home – securing finance.
What questions should you be asking your lender? What’s a ‘good’ interest rate? What’s the difference between fixed and variable loans – and which one should you pick?