8 Steps to get Into Your First Home
Saving for a deposit to purchase your first home can seem like a daunting task. However, saving for a house deposit does not have to be a tiring and lengthy ordeal. After all it is the great Australian dream to own your very own home. I can recall a time when I was in a similar position. However, equipped with the right strategies, I was able to accomplish my goal of purchasing my first home. I have outlined eight steps you can also take to turn that dream into a reality.
Analyse your spending and set up a budget
The simplest way to analyse your spending in order to cut back on unnecessary expenses is by setting up a budget. List out all your essential costs, such as rent, bills and food, and subtract this amount from your income and the left over is what you could potentially save for your deposit. Most banks have automatic spending trackers that can also assist with budget setting. These are very handy tools, so be sure to take advantage of the functionality of these applications. It is very important that you stay disciplined throughout this process and do not lose sight of your goal.
The key to staying motivated when keeping to a budget is to give yourself some leeway – if your budget is too tight, it will be harder to reach your target. So don’t cut out all your fun expenses. It’s a good idea to set smaller savings goals along the way and reward yourself with low-cost things you enjoy when you achieve them.
High Interest Saving Accounts
Once you have determined the approximate amount you can save, it is time to make your money work for you. This can be accomplished by finding a savings account that offers bonus interest for every month you don’t make a withdrawal; you will be less likely to touch the money unless it’s an emergency.
If you just leave your hard earned savings in your everyday transaction account, you might be tempted to use the cash. You will also earn less interest than you would by transferring your savings to a high-interest savings account.
Automate your savings
A great way to boost the balance in your savings account is by transferring money to the account as soon as you get paid. You should set up automatic transfers to your savings account online, or ask your payroll department to send part of your pay to your nominated savings account.
Automatic transfers allow you to ‘set and forget’, knowing that your savings are growing without you having to transfer them manually every time you get paid.
Manage your debts
Apply for a copy of your credit file and make sure you clear away debts. It might not be the best time for you to purchase a home or investment property if you have bad credit. If you have multiple credit cards and loans to pay off, minimise these as much as possible. Reducing your limit on your cards will help you secure a larger finance amount. If you’re struggling to meet credit payments, reach out to your provider to help you renegotiate the terms of your payment schedule. General rule of thumb when it comes to paying off debts is to pay off those with the highest interest rate first. By reducing your debt and therefore reducing your repayments, you will directly increase the amount you are able to put away into your savings account.
Do your research
Once you have ready to commit to your goal of purchasing a home, sit with a mortgage broker and identify your borrowing capacity. This is otherwise known as conditional approval or approval in principle, securing pre-approval before even searching for your home is ideal so you can know your price range. By providing your lender with your financial details – such as your credit report, savings, income, liabilities and investments – they will be able to review the information and grant you with pre-approval to borrow up to a certain amount. This will help you make your goal of purchasing your first home more specific, measurable, and relevant as it gives you a price range of the properties you could potentially afford.
Now you’re ready to go shopping!
Lenders mortgage insurance and the First Home Loan Deposit Scheme
Be sure to check if you are eligible for the federal government’s First Home Loan Deposit Scheme as this will make it easier by guaranteeing mortgages for first home buyers who have only saved a 5% deposit. This will help reduce the cost of purchasing a brand new home if you did not have a 20% deposit as your lenders mortgage insurance will be waived on certain conditions. This scheme is scheduled to start on the 1st of January 2019 and can work to your advantage if you do not have the required 20% deposit.
The bigger your deposit, the lower your loan to value ratio (LVR) will be. This is the amount of the loan divided by the purchase price (or appraised value) of the property. An ideal situation when purchasing a home is to have a deposit of 20% of the purchase price plus enough to cover ongoing costs.
Otherwise, if your LVR is higher than 80%, you will usually need to pay lender’s mortgage insurance, and the lender could charge you a higher interest rate. Avoid these extra costs by saving a bigger deposit to lower your LVR if you are not eligible for the First Home Loan Deposit Scheme.
First home owners grant Scheme
If you and your partner haven’t ever bought a property before, there’s a good chance you are eligible to receive the First Home Owner Grant (FHOG). FHOG is a national scheme, but each state funds its own and the amount varies state-to-state. Be sure to check if you are eligible as this is a great incentive to assist you to accomplishing your goal of purchasing your first home.
The government will determine whether you can receive the grant based on whether you have purchased a home or investment property previously, or whether your spouse or partner has too. It’s not necessary to apply in advance, but you need to submit your application within 12 months of purchasing your new home.
First Home Super Saver Scheme
The first home super saver (FHSS) scheme allows first home buyers to save a home deposit within their super fund.
Under the scheme, you can make voluntary super contributions within existing contribution caps. Up to $15,000 of those voluntary contributions made in a financial year can be withdrawn to purchase your first home. The maximum that can be released is $30,000 in total. This is another great incentive set up by the government to assist first home buyers.
Saving for a house deposit might seem like a daunting task, but here at Money Solutions it’s our job to guide you towards your home ownership dreams. By using the steps outlined above you’ll be amazed at just how soon you could be receiving the keys to your new home.