It’s not called the great Australian dream for nothing. Saving for your new home is, for most Aussies, their major life goal. Fortunately, even though house prices have continued to rise, the dream is very much alive for those wanting the security and safety of having a home to call their own. But the first hurdle most people run into is needing to save up for a deposit. However, there are a few things you can do to make this process a lot easier.
First and foremost, there are a few common misconceptions when it comes to buying a home. The main one is that most new buyers think they are going to be priced out of the market because they can’t afford the 20% that most banks want to see.
But the truth of the matter is there are plenty of lenders that require a far smaller deposit – with some as low as only 5%. On the purchase of a $400,000 property, that is only a $20,000 deposit. So while it will take some work to save that money, it is certainly doable for young couples or even singles wanting to get into their own home. Just note that, Lenders Mortgage Insurance might be payable.
There is also the opportunity to get into a home and borrow 105% of the purchase price. The additional 5% is to account for the additional costs such as stamp duty. You can use this type of loan if you are able to have a guarantor on the loan. Normally for first home buyers, that’s going to be Mum and Dad. It can be a quick and easy way to buy a first home or even a house and land package from a custom home builder in Melbourne without needing to save at all.
It’s also easy for those looking to buy a home to forget about the additional costs that come with the actual purchase. Those costs include stamp duty, settlement costs and loan establishment fees. So when working out how much you actually need to save, you’ll have to factor those costs in, which are generally around 5% of the property’s value.
All home buyers need to start with the end in mind, so it is vital that you first talk to a mortgage broker and work out how much you’re going to be able to borrow based on your level of income. From that, you will also be able to find out what your options are regarding the LVR and deposit.
Find out what those total upfront costs will be and that should be your savings goal.
At this stage, you then need to work out a weekly budget that will let you save the extra cash you’ll need to get that deposit.
A great free tool is PocketBook, which you can use to track your spending, so you know exactly what areas your money is going towards.
Budgeting and saving are not always easy so one useful way to better manage your expenses is to allow yourself a weekly ‘float’. Transfer your weekly spending money into a separate account and only access it via debit card. That way, you have a fixed amount you can spend each week and you know you’ll be able to save. All those savings you are collecting should be transferred into a separate high-interest saving account, not to be touched.
For homeowners who are looking to build their dream home or perhaps downsize, you are likely in a slightly different position. While your income might be higher, you also will likely have greater expenses. It is still a matter of budgeting and using a weekly ‘float’ is a great idea.
One tip for this group is that if you already have an existing home loan, make sure you have a 100% offset account attached to it. You are able to use the offset account to park your spare cash and it attracts the same interest rate as your home loan. Meaning that you could be making 4-5% on your money which is far higher than a term deposit or savings account in the current environment.
The Australian Government is very much all about helping people build or buy their new home. As such, there are a number of schemes that you can use, particularly if you’re a first home buyer.
The FHOG is a Government Initiative that helps first home buyers by offering them up to $20,000 to help with the purchase of a new home.
The FHOG Victoria is only available if you buy a newly built home or choose to build through a custom home builder in Melbourne. You can access $10,000 if you build or buy in Melbourne or $20,000 if you buy or build in regional Victoria.
The First Home Loan Deposit Scheme was made available from 1 January 2020 and it helps buyers by effectively letting them put down a deposit as small as 5% of the purchase price.
This saves buyers around $10,000 in lender’s mortgage insurance (LMI) fees, which generally applies to loans with an LVR of more than 80%.
Whether you have a partial, full or even no deposit, we’re happy to have a chat with you about your future home. We offer plenty of house and land packages suited for your situation, whether you’re a first home buyer, forever home buyer, downsizer or investor, we offer something for everyone. If that’s not what you’re looking for, we also offer a custom design building service so you can get exactly what you want.
Get in touch with our building experts today at email@example.com or 1300 234 432.
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