Saving for a deposit is one of the biggest struggles for borrowers. So what should you do to help speed up the process and reach your deposit goal sooner?
Saving for a deposit is one of the biggest struggles for first home buyers and can take some time to save a sufficient amount.
According to the Genworth Homebuyer Confidence Index (March 2014), almost 60% of prospective first home buyers estimate it would take them four years or more to save for a 20% deposit. So what should and shouldn’t you do to help speed up the process and reach your deposit goal sooner? Take a look below.
DO consider putting savings into a high interest savings account to help boost the amount. By doing this, you money will be working extra hard for you without you having to do anything extra.
DON’T take on more debt. Applying for a new car loan, credit card or an ongoing commitment, such as a gym membership, will mean that less money will be going towards your deposit. During this time, work on eliminating as much debt as you can, particularly from credit cards and other loans, and once you have you will be surprised at how quickly you can save a substantial lump sum.
DO eliminate luxuries. Extra expenses such as Foxtel, house cleaner and eating out every night may only seem like small expenses, but over a few months, these extras can add up. Even if you temporarily stop these ongoing commitments while you save up the deposit, it can help make it easier to save a larger deposit and then you can go back to having these once you reach your goals.
DON’T forget about meeting your other financial commitments. It is extremely important for prospective home buyers not scrimp too much that they end up not meeting repayments for debt they already have. Even if you are trying to put every extra dollar towards your deposit, if you end up missing other repayment due dates, it could have a negative effect on your borrowing power when it comes time to apply for a home loan. When assessing your home loan application, in the near future lenders will be able to see the past 24 months of your repayment history. If it is a bit hit and miss or if there are any defaults this could cause problems getting approved.
DO use free online tools such as calculators. There are a number of free tools online that can help you track your progress and give you ideas on how quickly you can save your desired amount. Take a look at the finance and home loan calculators available on the State Custodians website. To keep you motivated why not try an instant online pre approval. It will give you a result in your inbox in 60 seconds without impacting your credit report.
DON’T forget that saving less than 20% of the purchase price will mean that you will incur extra fees, such as Lenders Mortgage Insurance (LMI). Even though saving a smaller deposit may help you get into the property market sooner, you will need to weigh up how much the extra fees will cost you and whether it is worth waiting to save 20%.