The number of first home buyers who save for their first home in Australia is rising!
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 from 17.4% in March.
However, more than 80% of those first home buyers hadn’t saved a 20% deposit.
Saving for your first home has always been tough and today is no different.
But it can be done, and the latest data proves it.
Here are five ways that first home buyers are successfully saving for their first home:
Many people fail to create and stick to a budget.
To successfully save for your first home, you will need to spend less than you earn. This means you’ll need a good budget.
Not only will it show you just how much you are really spending on 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
If you have more than one credit card, consider consolidating the balances onto one card and chopping up the others.
Total limits when it comes to getting a home loan approved, not your balances.
For example, let’s you have a $1500 balance on three different cards, but a total spending limit of $15,000 across all three. It will actually be the latter figure that’s included in the bank’s assessment of your borrowing power.
You should then pay them off as quickly as possible, of course.
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.
#3: Save, save, save
Each time you’re paid, set aside a specific amount in a separate account.
This figure needs to be achievable. It shouldn’t leave you eating baked beans until your next pay day.
That being said, it should be a number that will grow into a deposit over time. It will require some sacrifices, but that’s always been part of the deal for anyone buying property.
#4: Mum and Dad
Parents have been helping their children financially for generations and that is still the case today.
Guarantor loans are a popular loan product which use a proportion of the equity in your parents’ home or investment property towards a deposit.
Parents – if you’re considering this step for the kids, make sure you understand all the ins and outs before proceeding! This could have a big impact on your own finances if the proverbial hits the fan.
#5: Lenders mortgage insurance
Despite the fact that most first home buyers don’t save a 20% deposit, that’s not deterring them from buying their first home.
One of the reasons why is no doubt that their ability to save the deposit often doesn’t keep up with the increase in property prices.
So, instead of struggling to save for a property that keeps outpacing them on price, they opt to pay lenders mortgage insurance (LMI) instead.
LMI 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 how we feel about this fee, there’s no doubt that it’s helping young people buy property sooner.
At the end of the day…
If you’re prepared to do what it takes, you can own your own home.
Start planning early and make the changes to your spending now. You’ll reap the benefits in the long run.
If you’re ready to buy your first home, make a time to sit down with us in the New Year. We have some incredible properties on the market for those that enjoy exceptional convenience and amenity close to the city.