Russell Ward Finance Writer
Buying and owning a first home is a great achievement and one of the best ways to build wealth.
The ultimate dream for most Australians, home ownership requires having a sizeable deposit to put towards that initial property purchase and you’ll need to be disciplined in working towards your savings goal.
When it comes to putting away money for a first home deposit, check out these helpful tips.
1. Understand how much you need to save
One of the first steps is to seek the advice of a lending consultant to figure out exactly how much you need to save. An ideal deposit is 20 percent of the total property value – anything less than that and you will probably have to take out Lenders Mortgage Insurance (LMI), which is an additional lump sum payment as you’ll be borrowing more than 80 percent of the property’s value.
It’s also worth checking out whether you are eligible for any first home owner government grants designed to help you enter the property market. Currently, First Home Owner Grants (FHOG) across Australia look like this:
• NSW offers grants of up to $10,000 effective from 1 July 2017, plus stamp duty concessions and exemptions from transfer duty on certain property values.
• Queensland has offered concessions of up to $20,000 since 1 July 2016.
• Victoria offers grants of up to $20,000 if buying a new home regionally or up to $10,000 if buying a home in a city.
• Western Australia has grants of up to $10,000 plus additional grants to cover established or partially built homes.
• South Australia offers grants of up to $15,000 for new residential dwellings, plus additional stamp duty concessions in some cases.
• Tasmania offers grants of up to $20,000 until 30 June 2018, at which time the grant will revert to being a $10,000 payment.
• The Northern Territory offers grants of up to $26,000 plus additional stamp duty, home renovation and home goods concessions apply.
• The ACT offers grants of up to $7,000 as of 1 January 2017.
2. Set a savings goal plus a plan to achieve it
Once you know the golden number, you can set a savings goal and get started on a savings plan to achieve that goal. At each pay day, allocate money to a separate savings account before paying the rent, any bills or personal treats, and then try not to touch that money. Either transfer the money yourself or set up an automatic transfer for when your monthly salary comes in. And, if you can, add to this account whenever you feel able to and watch the savings grow.
3. Create a realistic budget and stick to it
Now you have you target goal and savings plan, prepare a budget and keep to it. Look at every item you spend money on and cut out unnecessary spending on non-essential items – this isn’t the time for luxuries and last-minute impulse blow-outs so tighten your belt and reign in your spending. Work out exactly where you can make savings based on incomings and outgoings, and make real progress towards your home ownership dream.
4. Don’t forget the extra costs
When buying your first home, there are often other extra costs to take into consideration and plan for. These can include building inspection fees, pest inspections, property valuation and solicitor fees, the cost of removalists, building and contents insurance, stamp duty, initial utility bills, plus any loan application fees. These costs can quickly add up so ensure your original calculations include all possible scenarios.
5. Reduce your overall debt burden
By paying down your debt, you’ll save on interest payments and free up cash to put towards the first home deposit. Clear the higher interest debt first, such as credit cards, hire purchase agreements and personal loans, to boost the amount of money you can put away each month and give you the chance of securing a larger size home loan. Plus, you’ll have shown lenders that you can responsibly make repayments to your debt.
About the author
Russell Ward is a professional business writer who has been published in The Huffington Post, The Telegraph, CEO Magazine, Global Living, Mamamia and Thought Catalog.
Please note that this article is not financial product advice and does not take into account any person’s individual objectives, financial circumstances or needs.