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How to save for a deposit


A handy guide on where to start when saving for your first home.

Owning a home is a huge and exciting milestone. But saving up enough money to get there can feel impossible. Even raising the deposit for a home mortgage might seem like quite a stretch. But actually, becoming a homeowner might be easier than you think. You only need a clever savings plan to make your dream home a reality.

Let’s discuss what it takes to save up for a house deposit.

How much should you save?

First, you must set your sights on a target amount and time frame. Ask yourself how much you can afford to pay for a house, basing your target on realistic and achievable expectations.

And remember, house prices vary widely depending on several factors, including location, build, style, and size. So, take your time and research the cost of homes matching your dwelling preferences and budget. Talk to realtors, look up online listings, and visit open houses to get an idea of how much your first home will cost.

Once you have a figure in mind, aim to pay down at least 20% of the cost but this ratio is not set in stone. Depending on your credit score and lender, you can deposit as little as 5% of the property’s price.

However, if you deposit less than 20%, you might be required to pay for Lenders Mortgage Insurance (LMI), an insurance coverage that protects the lender from default that may add thousands of dollars to the cost of home ownership. You can pay LMI upfront or have it included in the loan, in which case it accrues interest.

Tips for saving money toward a house deposit

Now that you know how much down payment you need for your dream house, it’s time to set up your accounts and start saving. Here are five money-saving tips to get you started on the journey to becoming a homeowner:

Start a side hustle

Find one or more lucrative ways to supplement your primary income sources. Today’s gig economy is full of instant earning opportunities that barely cost a penny to get started. For instance, armed with just your smartphone and wits, you can pick up decently paying side hustles such as pet sitting/walking, freelance work, and rideshare driving.

Also, asking for a raise at work (if the time is right), renting out your car, and selling the stuff you don’t need anymore can help you raise extra money for the deposit.

Open a high-interest term deposit account

Saving money calls for high levels of discipline and commitment. Unfortunately, some people have a habit of spending monies otherwise earmarked or stashed away as savings. If you’re one of those people, a term deposit account can help you secure your savings. A term deposit account locks away funds for an agreed period (term) with options ranging from months to years.

And, as a bonus, term deposit accounts generally offer higher interest rates than most checking and savings accounts.

Cut back on spending

Part of the commitment to saving money is making sacrifices. Start by reviewing your monthly budget and taking a closer look at your bills and expenses. Prioritise paying off any existing debt and get rid of any high-interest credit cards.

While at it, break lux spending habits such as impulse buying, dining out, and holidaying. Financial restraint can go a long way in getting you closer to your savings goal.

Save all your extra earnings

It’s important to prioritise saving, ideally through a solid savings plan based on your income. Being able to show a lender evidence of genuine and regular savings will help your chances of being approved.

In addition to that, make a point of allocating any extra income you earn to your house deposit savings. If you get a surprise bonus at work, a monetary gift, or a good deal on a sale, let your first instinct be to save the extra cash. Doing so will speed up your journey to home ownership.

Look into government support

If you're not confident raising the entire 20% house deposit, the government may be able to help you out. In 2020, the Federal Government, through Housing Australia, started the Home Guarantee Scheme (HGS) to allow eligible first-time home buyers and single-parent families to purchase property with as little as a 2% deposit, without incurring LMI.

To be clear, the government does not fund your purchase, but instead guarantees the remaining portion of the house deposit, eliminating the need for LMI. Also, the HGS is limited in the number of Australians who can claim it, with borrower eligibility criteria and property price caps, plus the lenders that participate in the HGS. Places in the HGS are distributed across three guarantee types:

  • First Home Guarantee (FHBG) – Supports first home buyers to purchase a home with as little as a 5% deposit, without incurring LMI.
  • Regional First Home Buyer Guarantee (RFHBG) – Supports first home buyers specifically purchasing homes in regional areas with as little as a 5% deposit, without incurring LMI.
  • Family Home Guarantee (FHG) – Supports eligible single parents or eligible single legal guardians of at least one dependent to buy a home sooner, whether they be first home buyers or previous home owners, with as little as a 2% deposit, without incurring LMI.

Qualifying for HGS can make you a homeowner sooner and without the hefty cost of LMI.

The takeaway

You can easily save enough money for a house deposit and become a homeowner, even as a young adult. All you need is discipline, commitment, and a solid plan. Also, take any help you can get along the way, whether it’s support from friends and family or guarantees from the government.

This article is intended to provide general information of an educational nature only. This information has been prepared without taking into account your objectives, financial situation or needs. Therefore, before acting on this information, you should consider its appropriateness having regard to these matters and the product terms and conditions. Information in this article is current as at the date of publication. Terms, conditions, fees, charges and credit criteria apply. We do not recommend any third party products or services and we are not liable in relation to them. Any links to third party websites are for your information only and we do not endorse their content.

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