For a significant number of first time home buyers, it seems saving for a 10-20% deposit is impossible to do, particularly when the markets don’t show signs of slowing down. But don’t lose hope. You can save for that home deposit but you will need a comprehensive savings plan and the right mindset.
Step 1: Savings Plan
Start saving for a deposit early and you will arrive at the full amount much quicker.
- Most people know the amount of their weekly pay cheque, but are slightly vague on how much they actually spend every week. Make an effort to understand your financial circumstances so that you can determine when you can save money to put towards your deposit.
- Pay off your debt. This is also the time to clear any bad debt you may have. If you’re paying interest on any credit card or small loan, time to pay them off. The money will be better spent on your deposit.
- Once you have your budget set, you’ll determine the amount you can put on your savings account every month. This will ensure the money is being put towards your savings and not on things like shoes. Open a separate savings account (if possible, high interest/low fees) and set up a regular direct debit payment from your primary account to your savings account. This would prevent you from using the money for something else.
Step 2: Savings Mindset
You have to be prepared to make certain sacrifices because saving for a house deposit can be a slow process. Devoting yourself to your savings plan may be challenging, but the sacrifices will be worth it when you finally get your hands on your dream home.
Here are some things you can do to get yourself into the savings mindset:
- Determine a savings target and time frame. If you are considering a $500,000 property and you’d like to put down a 10% deposit, then you have to come up with a $50,000 savings. Figure out how much you can set aside every week for your deposit and then estimate how long it would take you to complete the amount. Always remember that the longer it takes you to come up with the deposit, the higher property values could go.
- Learn about interest rates. Interest rates are at a record-low, so many people could afford repayments on property. But interest rates can vary. Mortgage repayments increase when interest rates go up. Make sure to put a buffer in place when you’re calculating your repayment figures.
- Put a limit to your sacrifices. Don’t sacrifice all the important things in your life even if you really want to save for your first home. Limit your shopping or dining out or holiday, but it’s alright to still indulge every so often.
- Focus on your goal. Purchasing a property seems like an unreachable dream. You are regularly putting money to your savings account and yet it feels like you're not getting anywhere near where you can put down a proper deposit. It feels kind of discouraging, but keep your eye on the prize because sooner or later the money you've saved for many years will let you purchase a home or investment property.
3. Calculate Your Rent
Calculate how much you've already spent on rent. This alone could be all the inspiration to keep you on track to saving and purchasing your first home.