Five ways to save a deposit for your first home

The number of first home buyers in Australia is growing, partly due to the slower market conditions in Sydney and Melbourne and less competition from investors.

In fact, according to the Australian Bureau of Statistics, the number of first home buyer commitments as a percentage of total owner-occupied housing finance commitments rose to 17.6% in April 2018, up from 17.4% in March.

But more than 80% of those first-time property owners didn’t have a 20% deposit, according to the Mortgage Choice 2017 First Home Buyer Survey.

Saving a deposit for your first home has always been tough and today is no different, especially considering the strong price growth in some capital cities over the past few years.

The latest data, however, proves that it can be done and that the dream of home ownership is alive and well in Australia.

To help your dream become a reality, here are five ways to help you save a deposit.

1. Budget

Most people have to learn how to budget because it’s not taught in schools and unfortunately our country’s financial literacy is generally quite poor.

To successfully save a deposit for your first home, you will need to spend less than you earn and this means you’ll need to create and stick to a budget.

Not only will that teach you how much you are really spending on discretionary things like takeaway coffees and lunches, it will help set you up for a more disciplined approach to money in the future.

2. Credit cards

Most of us have credit cards and most people don’t control how much they spend on them!

Credit cards don’t have be feared, as long are you’re able to pay off the balance each month. If you have more than one credit card, you should consolidate the balances onto one card and chop up the others. This is because it’s not the balance of your credit card that matters, but the total limits when it comes to getting a home loan approved.

If you have a $1,500 balance on three different cards, but a total spending limit of $15,000 across all three, it will be the latter figure that will be included in the bank’s assessment of your borrowing power.

And remember, the limit on your credit card is not your money. It’s the bank’s and you’ll have to pay for the privilege of using it. And of course, always pay them off as quickly as possible.

3. Save and save some more

In conjunction with budgeting, you should set aside a certain amount that you save into a different bank account each time you’re paid. This should be a figure that is achievable and won’t leave you eating baked beans until your next pay day.

That said, it should be a number that will grow into a deposit over time. Sure, it will require some sacrifices, but that’s always been part of the deal for anyone buying their first home.

That’s one of the reasons why only about two-thirds of Australians own property.

4. Mum and Dad

Parents have been helping their children financially for generations and that is still the case today.

More and more parents are offering to help their children buy their first property and there is a more sophisticated way to do it these days, too. Guarantor loans are a popular loan product that use a proportion of the equity in your parents’ home or investment property towards a deposit.

It could be 10% or more, but it’s vital that everyone understands the ins and outs of offering to guarantee a home loan before proceeding.

5. Lenders mortgage insurance

The majority of first home buyers don’t have a 20% deposit, but that’s not deterring them from buying their first home.

One of the reasons why is their ability to save the deposit often doesn’t keep up with the increase in property prices. So, instead of futilely saving for a property that keeps outpacing them on price, they opt to pay lenders mortgage insurance (LMI) instead. This is a fee that banks charge buyers who have less than a 20% deposit that protects the lender in case the borrower defaults.

Regardless of what we think about this fee, there’s no doubt that it helps young people buy property sooner — plus you can capitalise (or add) it onto your home loan.