When you are thinking about your first home, saving for a 20% home deposit can seem really overwhelming.
The good news is that for some of the big non-bank lenders offers a minimum deposit for house loans and house deposit.
This is required on some products can be as little as five percent of the purchase price of the property. Yet, it’s always a good idea to have a deposit of 20% or more if possible.
So let’s look at how to get there and start having the house where you want to live.
1. Work out on the home deposit mortgage amount that you can actually afford. (Consider the First Home Loan Deposit Scheme
There are lots of online mortgage or LVR (Loan to Value Ratio) calculators that can give you an estimate of what your repayments could be.
Whether you are buying directly, a first home buyer (via grant), or just window shopping for the best modal of loan, you can always rely on a lot of banking calculators that are not limited on features.
Where to base these calculations?
Of course calculation depends whether you have Super (Superannuation), past transactions with Corporate business banking transactions (like Westpac), or other business or non-business related financial activities.
Super, or superannuation, is important because the more you save, the more money you will have in retirement. Super is a long-term investment which grows over time. For most people, super begins when you start work and your employer starts paying a percentage of your salary or wages into a super fund account for you. This long-term investment could be a basis too of how much you can actually afford.
This calculation is also based on your home loan amount and interest rate you think you’ll be paying. Once you get an idea of the sort of repayments you would be able to make you can decide on your target deposit.
Another thing is that you could study about the First Home Loan Deposit Scheme (FHLDS) is an Australian Government initiative to support eligible first home buyers to build or purchase a first home sooner. Know more here. There are certain calculations that you should also know about this scheme for you to be on the same page with your lender.
2. Get clear on the reasons you want to aim for a larger house deposit for your loan.
It can have several benefits:
- Smaller repayment amount when you do have a mortgage
- Save more money in the long run as you won’t need to borrow as much, which means you’ll pay less interest over the term of your loan
- You won’t have any Lenders Mortgage Insurance (LMI) costs (This is an extra fee payable by you as a borrower if you have less than a 20 percent deposit saved)
- A larger deposit means you are likely to get access to better interest rates – which will save you even more money.
Two most important steps to set yourself up to grow that bigger deposit:
Track your spending then create a budget (Specially if it is for your first home)
When you track exactly where your money goes each month you can see where you can keep some cash each month to put into savings. You can use a tool like the Government’s ASIC MoneySmart TrackMySPEND app to work out where you’re spending at the moment.
Commit part of your monthly income straight into a savings account… Don’t forget about the insurance savings.
Out of sight out of mind, is a savings strategy that can work well. You can do this by transferring a set amount that you have budgeted to your savings account and the amount you have budgeted to cover daily expenses and bills into your regular account. That way you help yourself stick to your budget and your savings are safely out of temptation’s reach.
Wondering how much to save? The 50-20-30 rule recommends that ideally 20 per cent of your income should go towards savings. But – every person’s situation is different, and that might not work for you. The important things is that a regular amount of savings whether it’s big or small, gets put aside. It will eventually add up and help you achieve your goals.
The ASIC MoneySmart website also offers some other ideas about how to save your deposit.
The importance of showing a lender you have made regular savings for your house deposit?
Another good motivation for saving into a separate savings account for your deposit is that lenders usually want to see what they call ‘genuine’ savings. Basically they want to see that you can manage your money well. If you have savings that are considered to be non-genuine (like an inheritance) you may still be able to use those funds if you put them into a savings account where they are left untouched for an amount of time – usually a three month minimum.
Need More Support on Your Home Deposit?
If you’d like to know more about the deposit amount you need, including options on deposits for less than 20 percent, have a chat with us to see how we may be able to help. Talk to us today.
Disclaimer: Original content source: Pepper Money. It is designed for publication through Accredited Brokers, to provide you with factual information only, and it is not intended to imply any recommendation about any financial product(s) or to constitute tax advice. If you need financial or tax advice you should consult a licensed financial or tax adviser. The information in the article is believed to be reliable at the time of distribution, but neither Pepper nor its accredited brokers warrant its completeness or accuracy. For information about whether a non-bank loan may be suitable for you, call us on 1300 722 494