Today I will be sharing my recommendations on how to buy your first home faster. Firstly, let’s establish that it’s never a good idea to rush into buying your first home for whatever reason, whether driven by generational expectations from your parents, peer influence, or feeling societal pressure.
It is imperative to recognise the potential pitfalls that arise from purchasing a property prior to you being financially and emotionally ready. By re-framing buying a house as an “important goal” you’d like to achieve rather than something that “needs to be done ASAP”, you can alleviate some of that pressure.
It is important to avoid taking on commitments that exceed your capacity. The concept of saving for a deposit and subsequently buying a home may seem straightforward, and in some cases it is, but housing affordability has two major elements that are important to consider:
a) Save the deposit and get the home loan
b) Manage the mortgage repayments without putting yourself under financial strain
The solution to ensure your goals are sensible and achievable, is firstly to have an understanding of what kind of mortgage you might need to purchase the type of property you’re after, then figure out what you’re comfortable repaying each month.
Note: the amount you’re comfortable repaying cannot simultaneously be every last cent that you’re making – factor in a buffer so you can also live your life, have some extra savings and allow for the risk of interest rate changes over time.
A mortgage is a long-term commitment, it is a non-negotiable expense that needs to be paid every single month. So it is imperative that you spend some time crunching the numbers in detail. If you’re just starting out, a good way to get a feel for what you can afford is to use some online mortgage repayment calculators and use different combinations of loan amounts and interest rates and see what they could potentially cost you.
Once you land on the amount of money you think you’ll need to borrow, the next step is to chat with a good mortgage broker and work out if a bank or lender will actually lend you the amount of money you need. Your borrowing capacity is completely dependent on your income and debts and is based on how much you have left over to pay back that loan.
It is almost impossible to put tangible goals in place without a clear understanding of what is achievable first, so this should always be your first step.
SO HOW MUCH DO YOU NEED FOR A DEPOSIT?
Well, how long is a piece of string? There is no exact or set amount that you have to save – it all depends on your own situation and preferences however an ideal goal is 20% as this means you don’t have to pay lenders mortgage insurance which is an extra cost on top of your loan.
When you have less than a 20% deposit (assuming that you don’t have any assistance from parental guarantors or government schemes), lenders mortgage insurance will be around 5%.
Here is an example: If you’re borrowing $500,000 and you had a 5% deposit, your lender’s mortgage insurance will be around $15,000 which is quite a substantial amount.
Just to be clear, I am not saying you must save a 20% deposit to avoid paying mortgage lender’s insurance, sometimes it is inevitable (and even I have paid it before when purchasing a property), but it’s something that you need to be aware of and should be factored into your budgeting.
An extra perk of having more of a deposit is that the lower the loan you have, the less interest you pay, which means more equity in the property. But in short, somewhere between 5% and 20% deposit is a good start.
So now you’ve established how much you can borrow, and how much you’re aiming to save for a deposit, here are my 5 top tips for hitting those savings goals faster:
1. UTILISE THE FIRST HOME SUPER SAVER SCHEME
This scheme allows you to save extra money in your super account to save on tax, then withdraw it as a contribution to your deposit when you’re ready to buy a property. It’s underutilised because not a lot of people know about it so be sure to enquire with your mortgage broker, or financial planner or call the tax office to chat more about it.
Here’s an example: if you were earning $70,000 a year and salary sacrifice $7,000 into your super fund as part of this scheme, you’d reduce your take-home pay per month by about $377 however over 2 years, you’ll be saving an additional $2,600 and over 3 years, $4,500.
I really recommend this if you’re planning on buying a property in the long run as it is basically free money that you’re saving on tax
2. CONSIDER THE FIRST HOME GUARANTEE.
This is another government scheme that allows you to purchase a property with as little as 5% and effectively, the government acts like your parental guarantor for the loan so you don’t have to pay lenders mortgage insurance.
Be sure to speak to your mortgage broker about this scheme as there are eligibility requirements and mortgage insurance spots are also limited. Whilst buying a property with a smaller deposit does have other drawbacks that I mentioned earlier, it’s also not impossible and can help you get into the market sooner.
3. AVOID GOING INTO DEBT.
Sometimes it’s inevitable but when you go into debt, you are spending money which you don’t necessarily have.
Debt also comes with a cost. When you are in debt, you’re most likely paying that money back plus interest which can also put a lot of extra financial pressure on you if you’re struggling to keep up with repayments.
Debt not only eats into your cash flows whilst you’re trying to save for a property but it’s also not a good look when it comes time to buy a property as the lender will look at these debts and repayments as liabilities so it can have an impact on your borrowing capacity a little bit later on.
Where possible avoid going into debt, or at least minimise it as much as you can, and that includes things like buy now, pay later schemes as well. Even if you’re paying all of that off, you are still technically spending money that you don’t have yet.
4. TURBOCHARGE YOUR SAVINGS
Make temporary, short-term sacrifices because you can see a light at the end of the tunnel if you’ve got a specific and important thing that you’re saving for.
For example, if you’re earning $70,000 a year and find a way to save an additional $300 a week, that’s an extra $10,000 a year that you’ll be able to save after-tax through a combination of more income and less spending.
So how can you generate more income? I’ve got some friends that did Uber deliveries a few times a week for a short amount of time, and they were able to boost their savings. Sure, this is not necessarily going to be an option for everyone, but any small ways you can find to increase your income will help you turbocharge your savings
When I was 20 years old, I had a goal of moving overseas for a year and I decided to set a goal of saving 30 grand in six months. At the time I was working at a call center, earning around $60,000 a year. So to save that $30,000 in a short period of time, I got two extra jobs. I worked weekends and then I worked at a bar as well on weekend evenings. I did have the privilege of living at home at the time and of course, not everyone has the option of doing that. I’m not telling you to go and get three jobs, but this is an example of how I had a really specific goal and timeframe in mind, and I was able to achieve that by boosting my income and reducing my spending.
5. MAKE SAVING A PRIORITY.
If hitting your savings goal is important for you, make sure it takes priority over everything else.
To reduce temptation, you could set up an automated savings system where money from your income is automatically transferred into a savings account, maybe at a different bank. Out of sight, out of mind – like it was never there to begin with. I’ve also spoken to a lot of people who get that money transferred to their parents who act as gatekeepers as it’s a lot more challenging to ask your parents to send you some money back
There is ultimately no magic solution but by considering my five tips, hopefully, that will help put you in a position where you can buy your first home faster or at least be able to set some achievable and realistic goals.
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Expert buyer’s advocate, founder of Amy Lunardi Property and creator of of The First Home Guidebook - an educational podcast series and online course that empowers first-home buyers with all the necessary tools and knowledge needed to buy their first home.
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