Find out how much to save for your home loan deposit and tips for doing so, as well as comparing your options, with Savvy.
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It’s rarely easy to save up a deposit for your home purchase, as there’s plenty of discipline and self-control that’s required for you to achieve your goals. Fortunately, there are a range of key tips and tricks which you can employ to not only save up more effectively, but faster too. Compare a range of home loan options with Savvy today and find out how to save for a house deposit.
In most cases, lenders will require you to save a deposit worth at least 20% of the value of your home. This is the industry standard across all lenders, with 80% of the purchase price sometimes the maximum lenders will be willing approve you for. However, it’s still possible to get approved for a deposit of as little as 5% by paying Lenders Mortgage Insurance (LMI). This is a policy implemented to protect lenders in the event the borrower fails to repay their debt, which can cost tens of thousands of dollars.
Ultimately, though, how much you have to save for your house deposit will depend on different factors unique to your situation. For instance, a 20% deposit on one house is likely to be substantially different to that of another due to the difference in value. Additionally, you may be required to save more to cover the cost of your home’s stamp duty or the cost of LMI, so you should be aware of what each of them cost, as they can eat into money which may be set aside for a deposit.
There are many steps which you can take to help realise your goal of saving for your house deposit sooner, so it’s important to familiarise yourself with them and look to employ as many as you can wherever possible. Some of the key steps include:
Create a detailed budget
The most important thing is to set a household budget to follow in the leadup to submitting your deposit. This will help you determine where your money is going, where its usage can be improved and what amount is comfortable and reasonable for you to put aside each week, fortnight or month. Using this budget, you can narrow down what expenses are essential for you (such as food and rent) and which aren’t (such as costly gym and entertainment subscriptions you may not be using) to help you maximise the funds being dedicated to your deposit saving.
Set yourself savings goals
Using your household budget, you can determine what your ideal savings goals are. While you may have a specific amount in mind to pay for your dream home (which you can work out by multiplying the indicative cost of a home by the percentage of deposit you want, such as $500,000 x 20% = $100,000), the time taken may be more difficult to work out.
By determining what you can afford to save each week or month, you can calculate the time it’ll take you to save for it. For example, if you were able to put aside $300 each week and were aiming to save an extra $30,000, you’d be able to work out that it’d take you less than two years to reach it. Having clear timeframes in mind can provide greater incentive and motivation to reach your goals. You can use Savvy’s savings calculator to help work out how long it’ll take for you to reach your goal.
Maximise your personal savings
Of course, there’s more you can do with your savings to help bring your deposit goal closer within reach. You should always look to secure a high interest savings account in which to house your savings, as the interest generated each month can make a big difference. Using the previous example based on an existing savings balance of $70,000 and a goal of $100,000, you could reach it in three years by contributing just over $175 each week and would generate more than $2,500 in additional savings with a 1% p.a. interest rate.
Get on top of your outstanding debts
Debts such as credit cards and personal loans come with interest which can mount over time, potentially costing you thousands of dollars more than if you’d paid them off at a faster rate. That’s why it’s important to pay off as many debts as you can as soon as possible when saving up for a home purchase deposit. This is especially the case for credit card debts, as these are often high interest but, when paid promptly, the interest debt is reduced significantly compared to a minimum monthly payment, which could end up taking decades.
When first home buyers ask how to save for a home deposit, there are several different types of government assistance available. These include:
First Home Loan Deposit Scheme (FHLDS)
This scheme enables eligible recipients to receive a government guarantee for up to 15% of their mortgage deposit, meaning they won’t be required to pay LMI with a deposit as small as 5% of the property price. Some of the main eligibility criteria include:
New Home Guarantee
The New Home Guarantee is similar to the FHLDS, but applies specifically to the purchase of new homes, whether recently built or bought and constructed by the borrower as part of a house and land package. It also guarantees up to 15% of the value of a home deposit, although the following property price caps apply:
First Home Owner Grant (FHOG)
This scheme provides eligible recipients with a lump sum of up to $10,000 to $15,000 towards the purchase of their home, which may be used as part of their deposit. You mustn’t have owned any property in the past, nor can your partner have done if you’re purchasing property together. A lump sum like this can be a great help to young buyers struggling to save for their deposit.
First Home Super Saver Scheme (FHSSS)
The FHSSS is a scheme which enables Australians to make both voluntary pre- and post-tax contributions into their super fund to help save for their home. This can be obtained up to a maximum of $15,000 in one year or $30,000 overall. However, contributions made by your employer or spouse cannot be included in this scheme.
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