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The dreaded house deposit. If you’re starting from scratch, it can seem like an impossible goal, especially if you’re paying rent at the same time or have other financial commitments. But don’t despair. We’re here to tell you that there’s a way! Actually, there are a few.
As well as helping you get your deposit together, a consistent saving habit can help you reach your homeowning goals in other ways, too. Lenders take a pretty holistic view in assessing your reliability as a borrower, and being able to show a pattern of regular saving will help make you look like a solid bet to them.1
Let our writer take you through how they managed to save for a deposit, and what they learned along the way.
This one might seem obvious, but there are actually lots of variables that inform how much you need to save. An ideal house deposit is 20% of the purchase price, plus expenses, but depending on your circumstances, you might be able to get away with as little as 5%.2 You also want to do the maths on what your deposit amount means for your monthly repayments. In a nutshell, the lower your deposit, the higher your repayments. If they’re higher than you can afford, you might have to rethink your deposit amount, or the type of property you’re looking for.
If your deposit is less than 20%, you might also need to pay lenders’ mortgage insurance, which is usually a one-off fee at the time of purchase.3 But if you’re a first homebuyer, there are government schemes that could possibly help you skip it, as well as supporting you in other ways that could reduce your deposit. I’m in Victoria, so I’m planning to squeeze all the juice I can from both the national First Home Owner Grant and the state First Home Guarantee. Depending on where you live and your individual circumstances, there could be other schemes you’re eligible for.
When you apply for a Home Loan, lenders look at all your debts. If you have that one dicey credit card you’ve been trying to ignore, or that one utilities bill in your name that your housemate never paid (I feel you), the time to address it is now.
If you have a scary Higher Education Loan Program (HELP) debt, it could affect your borrowing power (the maximum sum lenders will let you borrow),4 but it doesn’t mean you won’t get approved for a loan. My HELP debt is … larger than I would want … but it’s the only debt I have, and it didn’t get in my way.
As part of your savings plan, it can also be useful to think realistically about potential future debts. If you have more than one credit card and you’re having trouble keeping track of them, consider cutting down to just one, or even closing them all.
You get a paycheck, you live your life, you don’t do anything particularly special, and then, mysteriously, the money is all gone. Or is that just me?
To get a handle on what I was actually spending, I copied all my transactions from the past few months into a spreadsheet, then added them up by category. It was eye-opening! Looking at my discretionary spending, I found expenses I could cut immediately. (That $30 per month on a VPN so I could watch a Hallmark Christmas movie one time – what was I actually thinking?!)
Seeing the numbers all together helped me be realistic about how much money I have and what I actually want to spend it on. Sure, a $10 smoothie helps me get through the 3pm slump, but when I look at it in the context of my broader smoothie consumption, it’s actually quite scary – and, maybe as a result, easier to shift.
A pretty big chunk of my salary goes on essentials – rent, utilities, phone and internet, groceries. ‘But essentials are essential!’ I hear you say. That’s true, but when I started thinking about how I could manage those expenses more efficiently, I was surprised how much I could save without making any big changes to my lifestyle.
Okay, this should probably actually be tip #1 because it means getting money for doing nothing. A totally welcome situation when you’re saving for a house deposit, right?
A high-yield savings account is an account where you can access your savings (unlike a term deposit, where they’re frozen), but you still earn interest on them. A competitive high-yield savings account might offer you an interest rate of 4–5%.5 The interest rate could be contingent on things like how often you make deposits or withdrawals and the balance you keep in the account, so keep those in mind in relation to how you’re planning to use the account. Keep an eye out for monthly fees, too.
My savings account doesn’t penalise me for withdrawals, so I get my pay deposited directly into it and then portion it out from there – more on that next!
This is where there’s a lot of scope for creativity. Look online and you’ll find apps, advice and complicated budgeting systems galore – you might want to try out a few to see what works for you.
I’ve tried out a few apps and, honestly, I’ve never stuck with any of them beyond a month or two, so now I follow a simpler system.
Thanks to my spending breakdown, I know how much I need to spend each month on consistent expenses – think bills, streaming services and public transport – so as soon as I get paid, that amount goes into a separate account. Then, all my bills get direct debited out of there.
I keep the amount I’m saving in my high yield savings account. Then, from what’s left, I deposit a weekly allowance into my checking account. I have it all automated, so I never need to think about what’s going where and when. Easy.
You’ll find self-help books aplenty about creating habits and sticking to them. That’s because it’s hard! As Socrates said, know thyself. Try to be realistic about your relationship with money, and account for it in your planning as much as you can. If that means saving less from week to week but saving more consistently in the long run, it’s probably worth it. Saving for a deposit is a marathon, not a sprint.
For me, I know that I’m a mild overspender. I don’t go wild, but whatever budget you give me, despite my best efforts I will consistently spend 10% more. (Maybe it’s all those uni essays where I could go 10% over the word limit.) So to counteract this, I put aside a buffer each month that doesn’t come into my other calculations. Then, I try to pretend it doesn’t exist. Invariably I’ll eat into it, but I don’t often go over.
Wherever you are in the saving process, it might be useful to get a sense of the Home Loans that are out there and how they could work for you. We’ve partnered with Lendi to help you compare Home Loans online.* It’s free, quick and easy, so try it out!
1 Lendi – Buying a property? How to be the ideal borrower and get approved for a home loan
2 Moneysmart.gov.au – Save for a house deposit
3 As above
4 ABC News – Stress and mortgage difficulties as inflation sees student HELP debts balloon
5 Moneysmart.gov.au – Savings accounts