The ‘First home buyer super saver scheme’ allows you to save for a deposit for your first home using your super account. The benefit of saving within your super is the concessional tax treatment of super which can help you save faster compared to a…
Budget guide to home ownership
Here are some tips to help you afford your first home if you’re on a tight budget.
Buying your first home can be daunting – particularly when money is limited. However, even if you are on a budget there are ways to save and get the property you want with some sensible forward planning.
The first step toward home ownership involves identifying the type of property you want, what you can actually afford, and how to close the gap between the two, so you can own your own home sooner.
How much will you need upfront?
To start, you must work out how much money you’ll need to have saved before you can realistically purchase your home. Ideally, you’ll have a 20% deposit of the total purchase price, but it is possible to buy a property with less than a 20% deposit. If you don’t have the magic 20%, your loan-to-value (LVR) ratio will be greater than 80%, and you’ll need to factor in paying for lender’s mortgage insurance (LMI). Furthermore, without a 20% deposit you may have a harder time securing a loan or your lender may charge you a higher interest rate. There are also other ways to bypass the 20% deposit - like having a relative go guarantor or getting a family guarantee.
In addition, another large upfront cost of buying a property is stamp duty. There are online calculators that can help you work out how much this will be (it varies by state and the price of the property). You’ll also need money for legal and conveyancing fees, the cost of moving, and fees for building and pest inspections of properties you are interested in.
How big a mortgage can you afford?
How large a mortgage you can realistically repay depends on your income, lifestyle, and ongoing costs. If you haven’t done so already, you’ll definitely want to make a budget of current (and future) expenses to help you figure this out. There are many mobile apps you can use to track your spending, as well as how you are progressing toward your savings goal.
Use a mortgage calculator to work out what you could afford, and what your loan repayments will be. It’s a good rule of thumb to make sure you could still afford the repayments if interest rates were to rise by two per cent. Be sure to factor in the ongoing costs of owning your own home including council rates, strata fees if you are buying an apartment, water rates, home and contents insurance, a budget for renovations (if required or desired) and ongoing maintenance or repairs. Building a savings buffer is also important to ensure you’re not placed under financial stress should unexpected expenses arise – as they usually do.
Saving for your home deposit
There are many ways to reduce your costs of living, earn more and save for your home deposit but the key is to start saving soon and regularly. Your lender will want to see a good track record of saving – ideally over 12 months or more – which is referred to as “genuine savings”. A great way to establish this while building good saving habits is to set up a dedicated high-interest savings account and have a proportion of your income automatically transferred into it each payday. You can even use a savings calculator to find out how long it will take.
Choosing the property
If you’re buying on a tight budget you may need to make a few compromises along the way. For example, if you have your heart set on a house, maybe a unit is the compromise you’ll need to make to get your foot in the door. If you can’t afford a property in your dream area, choosing an area with good growth potential could help your money go further, and make you more money over the longer term. You may need to rent out a room, or even be open to reinvesting: buying a property but renting it out and living elsewhere (remember you may not be eligible for the first home owner grant if you don’t live in the property).
Finding a lender
You can approach a lender directly for your loan or go through a mortgage broker. Home loans are available through credit unions, banks or internet-only lenders. Do be sure to shop around and do your homework, as saving even half a per cent on your interest rate can save you thousands over the years.
First home buyer benefits
You’ll definitely want to take advantage of any first home owner grants available to you, as this can be a significant leg up in obtaining your first home. You should also see if the first home super saver scheme can help you save for a home faster. (This is a scheme in which first home buyers can save for a deposit through voluntary contributions to their super fund.)
Remember, while buying a home is one of the biggest financial commitments you’ll ever make, the rewards are well worth it. With some careful budgeting and planning, saving for your own home is completely achievable.
Any advice given is of a general nature only and does not take into consideration your personal circumstances. Please consider the appropriateness of the advice before acting.