Learn to save up for a Home Loan Deposit with 12 easy steps.
Saving up for a deposit on a home loan can be a challenging task. Australian homebuyers typically have to save at least a 5% deposit towards their first home as well as prepare for other associated costs. Below are some key points that will help you save up for a home loan deposit.
1. Budgeting the loan amount
It is important to work out in advance what you can and can’t afford. This helps determine how much you can borrow. Set a budget plan on the purchase price and use that to determine the percentage of the deposit. Most banks would allow borrowing of up to 95% of the purchase price. You need to prepare a deposit of no less than 5% to cover the minimum deposit. Bearing in mind, there are other costs associated such as stamp duty, other legal fees and Lender’s Mortgage Insurance (LMI). LMI will be assessed if homebuyers will borrow more than 80% of the purchase price.
2. Goal setting
Plan your goal and set a realistic timeframe. Understand where your money goes every month and use this as guide for saving up for a deposit. There will always be unexpected expenses but having a goal will make it easier. A good way to start is to keep at least 10% of your salary and stick to it no matter what!
3. Reduce your existing debts
Clear out any outstanding debts – credit cards, personal loans, and any other type of lending that you have will impact how much you’re able to borrow when you apply for a home loan. Assess your debts and implement a strategy to eliminate each one of them. Make your regular repayments and extra repayments to reduce the balance further more. It’s easy to manage a home loan with fewer debts to be repaid.
4. Give up on luxurious way of living to spare for your deposit
If you are spending too much on what you want and not what you need, this is now the right time to change your lifestyle. Cut back and try to spend as little as possible on some items that are not needed, instead, put those spare money away to build up on your deposit.
5. Look for an extra source of income. Get a part-time job
If your budget is stretched that you’re only saving a little because of other debts to be paid, it may be worth having an extra income. A part time job won’t hurt if you are serious about saving for a deposit. Part time jobs such as dog walking, baby-sitting, freelance writing, online jobs, and or web design. There are limitless options, so long as you can manage your time and still achieve a work-life balance. This could easily add a few hundred dollars on your salary and roll up to thousands after a few months!
6. Cancel high-interest credit cards
Credit cards and high interest loans would only work against your savings strategy. Make sure to steer clear of credit card usage if you’re still building your deposit for the home loan. Do not allow additional debts to accumulate because this will bring difficulty in saving up.
7. Open another savings account
Opening another savings account would help monitor your finances and tracking your everyday expenditures. One account should be used as an everyday transactional account, for bill payments, and other expenses, and the other should be left untouched dedicated for deposit savings.
8. Set up an auto-debit savings plan
An automatic debit from your account to your linked savings account is one of the most effective strategies. It wouldn’t make any sense to take out the funds out of your savings account. You don’t want to go back to zero, make sure you keep your savings for deposit untouched!
9. Prepare for other costs
The required amount of deposit is not the only cost involved in buying your first home. There are other fees such as stamp duty (varies per state and some exceptions may be applied), and other legal costs in taking out the home loan. Most banks will waive the application fee but some will charge a valuation fee. It’s best to keep extra funds for extra expenses along the way!
10. Sell unwanted stuff online
Selling bits and pieces of things that you no longer use could potentially bring additional money in your coin bank. Work out on your skills in finding out ways to earn extra money. There are plenty of things that you can sell on eBay; it can be unworn clothes, used/unused household items, fragrances, electronic gadgets, etc. There is no limit and you can get rid of stuff you don’t need at the same time earn cold cash.
11. Bring your packed lunch and save on your meals
Take-away food from cafes or fast-food chains is a major expense that can be avoided. Learn the different ways of easy-to-prepare snacks and have it ready before you go to work. It gives you the benefit of both eating healthy and saving up some money for your deposit.
12. Rent a cheaper home or move in to your family home
While you are still keeping an eye on your earnings and deposit, moving back into your family home would help save on your rental expenses. If you can avoid renting, this could potentially help in building your deposit for your first home.
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