Buying a home is one of life’s huge milestones, but it’s no easy feat to achieve. Houses are expensive, and while the mortgage covers the bulk of the price, you still need to save a rather large deposit to get your foot in the door.
How much do I need to save?
You need to figure out what price range you can afford. You can do that by using this mortgage calculator. Firstly, you work out how much you can safely afford to pay towards your mortgage each month, then, you plug the figure into the calculator and it tells you how much you are able to borrow. For example, if you can afford to pay monthly repayments of $2,000 then you can afford to borrow roughly $380,000 (based on a 25-year mortgage at 4%).
The minimum deposit required is generally 5% of the value of the home. In the example above, a 5% deposit is $19,000. If you want to avoid lenders mortgage insurance, a 20% deposit is required, which amounts to $76,000 in the given example.
That’s a lot of money to save!
How do I save enough for a deposit?
Saving takes time, but we’ve got some tips that will get you there sooner.
Make a budget
We manage what we monitor. Monitor your spending to work out your essentials. To calculate your potential saving power, subtract your essential items (such as utilities, groceries and car expenses) from your weekly wage. This excess income is what you could be saving. Spending just $20 a day on miscellaneous items amounts to $7,300 a year! Cutting out your daily takeaway coffee or staying home to eat-in more often could see you well on the way to purchasing your first home. But remember not to leave yourself short, saving for a home doesn’t need to mean you go without all of the things you love to splurge on—everything in moderation.
Reduce your debt
Cutting down on debt is a great way to save on interest costs. This money could instead be used for saving for your deposit. If you have multiple credit cards or loans that you’re unable to live without, it could save you money to consolidate them into one loan. Making your credit card repayments promptly might save on interest costs if you pay it off during the interest-free period.
Find a high-interest savings account or term deposit
While trying to save, high interest rates are your best friend. Banks often offer savings accounts attracting high interest or bonus interest when you don’t make any withdrawals. These are great accounts for saving due to the high interest rate and the incentive to leave your hard-earned cash alone.
Term deposits are a good option for when you’ve got a lump sum to lock away for a specified period at a high rate.
Saving a deposit doesn’t happen overnight, but with set goals, hard work and dedication, you’ll be holding the key to your home before you know it.
