Whether stepping inside your dream home is a distant ambition or your new year’s resolution, buying a house is an important step towards achieving financial confidence.
Are you having visions of house sharing with the world’s loudest snorers for the rest of your 20s and 30s? But the thought of saving for your first home loan sends your heart beating wildly out of your chest?
I’m here to tell you that saving for your first home isn’t the financial Tour De France you might think it is. It does require discipline, perseverance, and the right knowledge to fast track your home owning dreams.
If a lender’s going to grant your first home loan, at least 5% needs to be “genuinely” saved. This means you’ve saved the deposit gradually over at least three months, or held the money for three months. This is proof to the bank that you have financial discipline. Gifts from mum and dad are not genuine – this one’s all on you.
Aside from spending less, there is actually a whole lot more to saving money and maximising your return. Here are my quick tips to get you started.
Knowledge is power
A friend of mine recently expressed the desire for a new phone. So they went to the nearest shopping centre, bought the first one offered to them, and then went home and regretted it. Why? Because they didn’t get the best offer. Why? Because they didn’t know what was on offer! Loans and interest rates vary from lender to lender, and from city to city. Read up on the facts, and you’ll be a confident, happy first-home buyer in no time.
If you’re serious about scoring the keys to your very own kingdom, the best place to start is right in front of you. I’m passionate about helping first home buyers understand the often confusing world of home loans, so you’ll find a wealth of information on this blog and throughout the rest of the website.
This is perhaps a more obvious and boring part of the savings plan. But having a budget and doing your best to stick to it is one of the simplest tricks in the book of Happily Ever After Home Owners. To get you to that final chapter faster, create a designated budget for every area of your life. If you overspend in one area – perhaps $20 too much on coffees this week – deduct $20 from another area, like social activities. That way you can create a bit more balance, and overspending doesn’t end up in blowing out your budget.
A great tool to use is Money Smart’s Spending Tracker. It helps you track your expenses on the go, which can be a real shock once you add up how much you’re spending on lattes.
Buy with someone else
Earlier this year, The Sydney Morning Herald reported that more and more unmarried couples were buying homes together. And it’s not just those in relationships, either – even close friends are making the commitment. It makes sense: for single first home buyers, saving for that deposit all on their own can be enough to make a person throw up their arms and spend the rest of their days scrolling through Flatmatefinders.com.au. With two incomes, you’re halving the effort required to score that beautiful one-bedder in Chippendale. Of course, if you do take this route, you’ll need to decide upon a clear exit strategy if the relationship doesn’t work out.
Generally, you need around 10% of the home loan saved for a bank to take you seriously. That’s a 5% deposit, and 4% for costs like stamp duty, lenders mortgage insurance and conveyancing. If you can’t come up with this amount on your own, one option, particularly if you’re buying a property with a friend on not your partner, is a Property Share Loan. This allows you to split the cost of the home loan, while keeping your finances separate. This means you can divide the cost of owning a home between multiple people, and you’ll only be responsible for your share of the loan.
Alternatively, another way to secure a mortgage fast is with a guarantor.
Saving for your first home loan can feel like waiting for a bus on a rainy day – the 389 to Bondi Beach is late, again, and you’re so cold and cranky you’re not sure you’re going to make it.
If you’re feeling overwhelmed with your savings goals, break up your Big Dream Home Goal into smaller goals. Set an amount to save every month and give yourself an incentive. I’m wary of treating shoes as rewards, as that sets up a very tenuous relationship with spending. In my opinion, the gift of financial confidence is worth far more than a trip to Westfield. But if you do need an incentive, opt for an experience over an item, or an item that you won’t get bored of in three months.
A smart way to track savings goals is with Money Smart free online Track My Goals app. It’s a handy little app that keeps your priorities at your fingertips.
Don’t stop shopping, but stop compulsive shopping
There’s no easy way around it – unless you want to take on more work, you’re going to have to adjust your lifestyle if you want to save more. I’m not talking about trips to the Salvos for second hand shoes for the next 5 years – I’m talking about considered purchases that prioritise the long term. Opt for investment items over trends, downgrade your phone plan if you don’t need all that excess data, and whatever you do – avoid the sales! You might think you’re getting a bargain, but you’re likely spending money on things you don’t actually need. Opt for a full-priced pair of shoes you love over a stack of discounted items you only sort-of like.
Automate your bills and savings
Are you the type of person who waits until 11.59pm to pay your phone bill? Please stop doing that. It’s time to take the thinking part out of paying your bills and set up auto direct debits. Set up all of your bill accounts – phone, internet, gas, water, gym, Netflix – to be paid automatically from your savings account. This includes your home loan savings; think of it as another bill that has to be paid.
That way, you’re managing your personal finances with zero resentment and less stress.
Re-evaluate your accommodation
They call Generation Y the Boomerang Generation. In February this year, the ABC reported that 27% of those aged 20-34 in Sydney and Melbourne were living with their parents. Failure to launch? Potentially. But sticking it out with the parents for a few years is actually a fairly decent financial tactic. You’ll save hundreds – maybe even four figures – a month on rent.
The key to moving back home is to make sure you don’t lose your independence. You might be tempted to revert back to your HSC days – mum does the laundry, mum does the cooking, dad drives you everywhere – but if you’re going to make it out of there without regressing, you’re going to need to do these things yourself. After all, isn’t the goal financial independence?
Maximise your accounts
Don’t be tempted into leaving all of your money in your regular streamline account because it’s easier. Open up a new account, like the ING Savings Maximiser, and take advantage of their high interest rates. Another option is setting up a term deposit, which will yield you an even great return. Get in touch and we can even help you set this up. Try and leave your savings in the same account as it is easier for the bank to see.
There’s one hard truth about saving for your home loan: it takes time. But with sound financial advice, a bit of discipline and a few money-saving hacks, you’ll be able to stop wishing and start doing.
Why not start today? The first step begins with an email. Get in touch and get my advice for free – no catches, tricks or financial waffle!