Owning their first house is a significant milestone for just about any adult. Having a residential property provides people with a sense of freedom, as it allows them to design a home that is suited to their current needs, lifestyle, taste, and plans. At the same time, the process of owning a home can be a long and difficult journey. It takes a significant amount of money to be able to come up with a down payment for a home. And once the prospective homeowner is done with this process, they still have to deal with many years of consistent payments until they can pay off their mortgage.
How Much Do You Need for Your Home’s Down Payment?
If you’re planning to purchase your first home in the near future, one of the first hurdles you need to negotiate is building on the house deposit fund. Most lenders will ask for at least five per cent of the total price of the property you want to buy. According to a 2019 survey, residential properties in Australia are worth an average of AUD 636,900, so this means needing to pay around AUD 32,000 for the down payment.
Take note, however, that providing less than 20 per cent of the price of the property you are hoping for, often means that you’ll need to pay lenders mortgage insurance (LMI), which is designed to protect the lender from losses in case the borrower is unable to meet the repayment terms of their home loan. Also, paying below 20 per cent often means that you’ll be charged a higher monthly interest rate while you’re settling the rest of your mortgage. The initial convenience of paying a small amount, then, might end up costing you more in the long run. If you want to save, you need to set aside at least AUD 127,380 for your house deposit.
No matter if you’re aiming for 5 per cent or 20 per cent, you need to save money to pay for the initial cost of owning a home. Below, we’re sharing a few practical tips from our real estate agents that can help you reach your target amount.
Have a Goal in Mind
Given your current financial situation, how much can realistically go toward paying for your home’s down payment? To have a clear idea as to what this number is, you need to take a closer look at your income, expenses, and current savings. How much are you earning and how much do you require every month to maintain your essentials? Consider your current lifestyle and give serious thought to the expenses that you’re willing to give up just so you can reach your target amount. Perhaps there are services and subscriptions that you’re willing to part with for a few months? Taking these steps will help you find out just how long you need to save to reach your goal amount.
Minimise Your Rent
Now that you have solid plans of moving into your very own home, it’s a good idea to consider if it’s an option to reallocate your rent money or a hefty portion of it to your down payment. Are there family members or friends who might be willing to accommodate you for a few months for a monthly fee that’s smaller than your current rent? Are there friends who might be looking to share a space with a flatmate and whom you can split the rent with? There are also platforms that cater specifically to people who are looking for flatmates that you can check out, as long as having a flatmate is in the cards for you.
Use Affordable Transportation Options
If you live in a location with excellent public transportation options, it might be a good move to use buses, trains, trams, and ferries instead of driving and maintaining your own vehicle. If your place of work or typical haunts are just a few minutes away from your address, perhaps it’s a good time to consider biking or brisk walking to save money and live a healthier lifestyle. You don’t need to get rid of your vehicle, but if it’s a viable option, you can trade for a cheaper model and put the extra money into your savings account.
Sell Valuable Stuff You Don’t Use
If you’re planning to move in the foreseeable future, now is a good time to evaluate the unused items that are occupying space in your current home. Maybe you have working appliances that you never found the time to use, mint-condition tools for hobbies that you didn’t seriously pursue, or pricy articles of clothing that you never found the right occasion for? How about selling these to people who might make the most out of them and making money on the side? This will help you build your down payment fund and reduce the clutter that you have to get rid of or bring with you the next time you move homes.
Downsizing today and putting your money into your down payment fund will go a long way in making your dream residential property more accessible to you. What are your other ideas for building a down payment fund for your first home? We would love to hear about your ideas too.
Get in touch with Gerard Partners today if you’re ready to buy a house!