Saving a deposit for a first property is an exciting time in our lives, as it means we’re taking a first step on the ladder to financial security.
To save as fast as possible, you need a budget that shows you where and what you’re spending your money on. Once you have this information, you can even shave back a bit of spending to free up some extra cash to put towards your deposit. If you don’t have a budget, try the budget planner offered by ASIC’s Smart Money website.
Your budget should include essential costs, such as rent, bills and food. Subtract this amount from your income and the difference can be put towards a deposit. By trimming back non-essential spending such as an extra cup of coffee or paid lunches, you might be able to fast-track your deposit savings.
If you’re not sure where your money is disappearing to, check out ASIC’S Money Smart TrackMySPEND app for a month, which will show you where you’re spending your cash. At the same time, you won’t win many friends if you turn into a scrooge, so be sure to reward yourself when you achieve some of your savings goals.
A bigger deposit can also save you thousands of dollars in Lenders Mortgage Insurance (LMI). You’ll pay LMI to your lender such as a bank, credit union or building society, if you fail to save a deposit that is equivalent to 20% or more of the value of the property. Moreover, LMI covers the lender rather than you, should you default on your home loan liabilities.
On the flipside, the LMI has a place as it enables home buyers to borrow a larger percentage of the purchase price. The payment can be included in either your upfront costs or your loan repayments so that it’s spread across the term of the loan.
What you can borrow?
As a first homebuyer, you have to be realistic. A mansion in Sydney’s Double Bay or a waterfront in Perth’s Claremont will be well outside your budget. In this case, to get onto the first rung of the property ladder, consider buying a smaller property, an older property or a property in a more affordable area. The property might be on a main road, located near a water tower or come with vermiculite ceilings. To work out what you can afford to borrow, try ASIC’s Money Smart mortgage calculator as a starting point.