How To Save For Your First Home
Saving for your first home is a daunting task; the amount of money required for a deposit on a home loan can take years to build. The good news is that you have to start somewhere and over time your house deposit will significantly grow into a mature nest egg ready for investment into the property market.
So with a little bit of planning and a clear goal of buying your first home – you can start working towards your dream of owning your own house sooner than you thought. The hardest thing about it? Ensuring you adhere to your plans.
The first step, start saving today!
There is no easy way to put this, you need to save money! Start a saving plan for yourself effective from your next pay cheque. Try and save around 20-30% of each pay cheque or more if you can afford it. This will actively start to build your savings account while you work on other methods of planning to buy your first home.
Pay off your debt, it will affect your borrowing potential
It is very important that you try and pay off your debt before purchasing your first home. The amount you owe on credit cards, bills, loans and the like will directly impact a number of things when trying to save money for your first home.
Firstly it will limit how much money you can borrow. The banks don’t like to see that the person they are lending money to is swamped with debt in any way shape or form. A few thousand dollars of credit card debt could reduce the amount you can borrow by 100-150 thousand depending on the number.
Secondly, would you even be able to keep up with your home payments? Remember that your other debts will need minimum repayments each month and more (if you wish to reduce them significantly) so plan to budget these into your monthly earnings.
Thirdly, the more income you have to pay towards your mortgage, the quicker it will be paid off. So every dollar you have available should be going towards reducing that mortgage, it can potentially cut years off your mortgage length.
Planning your lifestyle and new house
One critical thing to remember is that if you do get a home loan, you need to know it is a responsibility that will be with you for many years.
In turn, it is important that you plan your lifestyle so that you will be able to afford your home loan repayments and still be able to enjoy your new home and new lifestyle.
Before acquiring a home loan, it’s a great idea to set aside some time to do a budget and find out exactly how much a new home loan will cost you in the long run. Sit down, work out your budgets and learn where you spend money and make money – this will help you understand the money you have available for use on a monthly basis.
- Interesting fact: Banks prefer that your loan payment per month does not exceed over 30% of your monthly income.
Once you know the amount you can borrow, remember not to over borrow. Sounds simple, but many people try and borrow as much as they can when really they haven’t thought about the consequences of doing so. Why not ask around and talk to others with their own experiences, learn from them and ask how they cope with mortgage repayments when times are tough or interest rates change.
Seek help from a financial adviser / or home loan specialist on ways to reduce your home loan but still be able to maintain your current lifestyle.
Australian Government Help
The Australia Government has come up with a few ways to help Australians wanting to save for their first home by introducing two methods of help;
First home saver accounts & First home owners grants.
The first home saver account is a government initiative to help Australians save towards a deposit for their first home. There are a few conditions that apply and the first home saver account as it isn’t necessarily for everyone but if you fit the following criteria than it can be a great way to save. The account can be open for up to four years and the government will contribute 17 per cent on the first $5,000 deposited.
This means an individual contributing $5,000 will receive a Government contribution of $850. If the funds are not used towards your first property than the money saved will be rolled over into your superannuation fund.
This is helpful as they will add some extra money to your account, but also a bit of a pain. Should you inherit a property, decide not to buy or buy an investment property – your money will have to be put into your super. This means that whatever you put into this account, whatever the dollar value – be prepared to either buy a house or deposit it into your super – there is no way of getting it back into your everyday account.
For more information visit:
http://www.homesaver.treasury.gov.au/content/default.asp
The second helping hand that the government is giving out is that of the First Home Buyer grant. This varies depending on what state you are in and can be between a few thousand dollars all the way up to nearly ten thousand dollars.
For more information visit:
Have you started saving for your first home?
Share with us the strategies you use to really build that nest egg up. We would love to hear from you.
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