Thursday, 4 April 2024

5 Steps to Saving for a Home Deposit

Saving for your first home can be an exciting part of the process if you stay motivated and focused on what you’re trying to achieve. With clear goals in mind, it’ll be easier to cut back on expenses and build up your bank account, knowing that it means you’ll be in your own home that much sooner.

 

Step 1: Review your current spending

It’s often the little, regular expenses that get us off track with money as much as the big-ticket items. Tracking exactly what you’re spending is the best way to make sure you know where your money is really going. Great ways to do this include keeping a spending diary or using a free app, such as MoneySmart’s TrackMySPEND. Comparing your budget with your bank statement can also help you see if what’s coming in matches what’s going out according to your budget. Set aside time to review the results and discover where you might be able to cut back on impulse buys and “spending leaks” – those little costs that can really add up like your daily latte.

 

Step 2: Get on top of your debts

It’s hard to save for a big long-term goal like a home deposit if you’re struggling to stay on top of debts such as credit cards, store cards or car loans. If you have a lot of debt, you’ll want to focus on clearing this first. Order your debts from the highest interest rate down and work your way down the list, clearing each debt entirely one by one, ideally. If you have a lot of debt you may want to consider consolidating it all into one loan to make it more manageable. A healthy history of managing your debts well, means a lender will likely view you favourably when it comes time to apply for your home loan.

 

Step 3: Set a savings goal

Get a clear picture of exactly how much money you’ll need to move into your new home, including upfront costs such as Stamp Duty, legal costs, home inspections and moving costs. Use a Savings Goal Calculator to work out how long it will take you to reach your goal at your current rate of saving. You may want to consider a smaller or older property or a property in a less popular area in order to get your first foot onto the property ladder faster. A mortgage repayment calculator can help you figure out exactly how much you can actually afford to borrow.

 

Step 4: Start saving

Obviously, you want your home deposit to be as large as possible. For one thing, if your deposit is less than 20% you may have to pay Lender’s Mortgage Insurance (LMI) or a Low Deposit Premium. Set up a dedicated high-interest savings account in which to save for a home deposit. Plan to transfer money into the savings account each pay day based on your budget and savings goal. If possible, set up a direct debit to transfer the money automatically.

 

Step 5: Make sure you’re loan ready

When you’re saving for your first home, it’s important to know what’s in your credit history, as any bad credit marks might jeopardise your loan chances. Find out what’s on your credit report and take the necessary steps to correct any issues.

Your credit score is what lenders look at when assessing whether you’re a good loan risk. Get a free copy of your credit report today.