Owning a home is the great Australian dream, yet for many, that’s exactly what it can feel like - a dream. And while saving up enough money to get into the property market to begin with may seem like an impossible and daunting task, it can be done. As long as you’re disciplined with your spending, draw up a budget, and research your options.
Here are some steps you can take to help build your first home deposit.
Lender Home Loan Interest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees Max LVR Lump Sum Repayment Additional Repayments Split Loan Option Tags Features Link Compare Promoted Product Disclosure
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1. Work out your deposit and set a savings goal
The key to a successful savings goal is to be realistic about what you can afford to buy.
Research the current housing market in your desired area to get an idea of the average property price. Refine your search to different property types (e.g. apartment, house, townhouse) to get a clearer picture of the final cost. From there, you’ll be able to calculate the deposit amount required and therefore, your savings target.
Most lenders require a deposit of at least 20% of the property's value. However, some lenders will accept a deposit as low as 10% or even 5%. But keep in mind that if you borrow more than 80% of the property price, you may have to pay Lenders Mortgage Insurance (LMI), which can be a big upfront sum.
Saving up for a smaller deposit also means borrowing more money which means paying more interest over the life of the loan.
Here are a few scenarios which highlight how your deposit can influence the cost of LMI.
5% deposit
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Property price: $700,000
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Deposit: $35,000
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Loan amount: $665,000
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Plus LMI of around $36,000
10% deposit
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Property price: $700,000
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Deposit: $70,000
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Loan amount: $630,000
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Plus LMI of around $12,600
20% deposit
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Property price: $700,000
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Deposit: $140,000
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Loan amount: $560,000
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No LMI payable
2. Analyse your spending and make a budget
Developing a comprehensive budget is super important for effective money management.
Analyse your income and expenses, and identify areas where you can cut back or make adjustments. Take a look at your monthly bills, subscriptions, impulse purchases, and entertainment activities. Ask yourself: “Do I really need this?” If not, cut it out. But if you do (e.g. your phone plan), try and look for better deals in the market that could save you some cash. Every little bit counts.
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Remember, you don’t need to eliminate all your luxuries and lock yourself up in a room. The trick is to be brutally honest with yourself about what money comes in, and what money comes out.
You’ll then need to determine how much you can afford to put away each week and stick to it. A lot of people use the 50/30/20 rule for budgeting - 50% for necessities, 30% for wants, and 20% for saving. But because you’re saving for a house deposit (which is a big chunk of money), you may want to allocate more than 20% of your income towards your savings pot. Maybe consider areas in the 30% ‘wants’ section you could cut out such as buying less takeaway.
Consider using budgeting apps, spreadsheets, or even InfoChoice’s Budget Planner Calculator to help you monitor your progress and stay disciplined.
3. Automate your savings
Now that you’ve worked out the right amount to stash away for your house deposit every week/fortnight/month, it’s time to set up an automatic transfer from your everyday account to an untouchable high-interest savings account.
A high-interest savings account will help your money grow faster over time, and hopefully get you into your dream home ASAP.
This "pay yourself first" approach ensures that a portion of your income goes directly towards your house deposit savings before you have a chance to spend it.
Bank Savings Account Base Interest Rate Max Interest Rate Total Interest Earned Introductory Term Minimum Amount Maximum Amount Linked Account Required Minimum Monthly Deposit Minimum Opening Deposit Account Keeping Fee ATM Access Joint Application Tags Features Link Compare Promoted Product Disclosure
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4. Consider receiving a helping hand
Saving for a home loan deposit can feel like a massive uphill battle. But if you set out a clear plan and take advantage of all the various grants and concessions available to you, it can bring the dream of owning your own home that little bit closer.
Here are some ways you could get help with your house deposit.
First Home Owner Grant
The First Home Owner Grant (FHOG) is a state government scheme that helps eligible first home buyers in the form of a one-off payment. You usually need to buy a newly built home under a certain price in order to qualify. These rules differ depending on the state/territory in which you apply.
First Home Guarantee Scheme
Under the First Home Guarantee Scheme (FHBG), first home buyers can purchase a home with a deposit as low as 5%, without the need to pay LMI. This means you can borrow up to 95% of the property value, with the federal government providing the lender with a guarantee of up to 15% of the property's value.
The FHBG exists alongside the Regional First Home Buyer Guarantee and the Family Home Guarantee.
Each financial year, the scheme offers 35,000 places for Aussies across the country until 30 June 2025.
First Home Super Saver Scheme
Under the First Home Super Saver Scheme, first home savers can make voluntary concessional (taxed at a discounted rate of 15%) and non-concessional (already taxed at marginal rate) contributions into their super fund which can be later withdrawn for a house deposit.
Stamp duty concessions
If you’re buying your first home, you may qualify for stamp duty concessions (depending on the state or territory). Since stamp duty can add a further 3-5% on top of the purchase price, these concessions can be a big help. Again, there is eligibility criteria you will have to meet in order to receive the concession.
Guarantor
Asking a family member to be your guarantor could be a way to build your deposit and get into the housing market sooner. A guarantor is required to offer the equity in their property to secure the loan. Essentially, this means that instead of paying a deposit, your family member signs a contract stating they will be responsible for the loan should you default on your home loan.
However, be mindful that asking a family member to be a guarantor is a big commitment that should be considered carefully.
5. Minimise your debt
High-interest debt, such as credit card balances, car loans, and/or personal loans can eat into your savings potential. They also limit your borrowing power. For example, even if you’ve only spent $2,000 on your credit card, if your limit is $20,000, your lender will likely factor the full amount into the equation.
Prioritise paying off any outstanding debts, starting with those with the highest interest rates. Once you've paid off a debt, redirect the money you were allocating towards those repayments into your house deposit savings.
Plus, the fewer debts you have, the more likely a lender will look favourably on you when the time comes to reviewing your home loan application. This can be a handy time to lower your credit limit or close credit accounts entirely. That goes for buy now pay later as well.
Read More: How to double your deposit in half the time
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