For many first-time homeowners, the dream of purchasing property is slowly slipping away and becoming seemingly unattainable with talks of rising cost of living and climbing interest rates.
Rest assured, with hard work and (some) sacrifice – it can be done! We’ve outlined some of our team’s best advice when discussing ways to effectively save for a home deposit.
Let’s talk numbers. In an ideal scenario, any industry professional will encourage a deposit greater than 20% of the total property purchase price. Why is such a large deposit recommended? Simply put, a greater deposit means a better financial outcome in the long run:
- A bigger deposit depicts a positive representation of your ability to effectively save and manage your personal finances. Your hard work has a paper trail, and lenders usually offer more competitive interest rates and less adjoining fees for situations that appear “safer.”
- Additionally, a greater deposit is an effective way to circumvent larger loans, additional interest, and Lenders Mortgage Insurance (LMI).
- LMI is a lender’s way of protecting themselves in the event of repayments being unable to be met.
Reaching a 20% deposit is no easy feat and may be discouraging for some at the very beginning of their savings journey. Luckily, there are systems in place to support first-home buyers every step to home ownership. Here are some tips to remember:
Hack 1 – Be realistic!
Realism is your superpower when planning and taking control of your financial future. Defining a realistic, sensible saving goal is among the first of many important steps to take when beginning the journey of saving your first home deposit. Need some guidance on where to start? Talk to your trusted Mortgage Broker or Financial Adviser to collaborate on outlining a reasonable and rewarding savings plan to help stay motivated in achieving your goals. They will also be able to tell you how much you can borrow so you know exactly what you are working towards.
Hack 2 – Reassess for success
Failure to plan is a plan to fail. Optimize what’s coming in by evaluating what’s going out. What actions can be taken within your financial landscape? Where can you make sacrifices within your current weekly spending to reflect healthy financial habits?
We’ve heard all the lectures on avocado toast and take-out coffee, but all sacrifices don’t have to be bleak. Try swapping knock-off drinks at the pub for a backyard BYO BBQ. An expensive gym class for a nature walk with a friend. Put the Netflix subscription on pause for a few months at a time.
In saying that, life is for living and no hard and fast sacrifices are sustainable long term. Treat yourself in moderation, but do not lose sight of your goals.
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Hack 3 – Debt.
When it comes to lending, consumer debt is a dark storm cloud on an otherwise blue-sky day. Have a chat with your chosen Financial Adviser to devise an effective strategy to repay any existing debts. If this isn’t possible, any debt should be factored into your savings plan and kept front of mind to manage.
Hack 4 – Don’t be afraid to accept and seek help.
There are numerous schemes and grants on offer that assist first-home buyers with their deposit.
The Home Guarantee Scheme (HGS) & The Family Home Guarantee Scheme (FHGS)
HGS and FHGS both offer eligible first-home buyers support when saving for deposits on their first homes. These schemes enable smaller deposits such as 5% and 2%, and waive LMI and other additional fees.
First Home Super Saver Scheme (FHSSS).
The FHSSS allows voluntary contributions into your nominated super fund, to help save money for your first home. The scheme allows for competitive interest rates and potential tax savings.
For more details on availability and eligibility requirements, chat to your chosen Mortgage Broker.
Hack 5 – Bang for your buck
As interest rates climb higher, now is a great time to seek out a high-interest savings account. Depending on your timeline, consider a term contract that can offer a competitive rate for a committed period of time. Shop around banks to see what’s on offer, and how they compare. Keep in mind the features on each of these accounts, some only apply the highest rate if you meet certain criteria monthly.
If you are considering investing your savings into shares, seek the advice of a professional to ensure it’s right for you, your situation and your timeline. As a general consensus, the recommendation is to be invested for a minimum of 5 years to ride out any market volatility and avoid any loss on those hard-earned savings.
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What you need to knowThis information is provided by Invest Blue Pty Ltd. (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice regarding those matters and seek personal financial, tax and/or legal advice before acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.