Saving for a deposit<\/h2>\n\n\n\n
One of the biggest hurdles first home buyers have to overcome is saving for a deposit. This initial down payment can be enough to keep us trapped in the mindset that property won\u2019t be possible for us. <\/p>\n\n\n\n
But we\u2019re here to tell you this: you can get your foot in the door with a much lower deposit than you\u2019ve been told, in some cases even with no deposit at all. And here\u2019s how. <\/p>\n\n\n\n
Let\u2019s talk about the 20% deposit myth<\/strong> <\/p>\n\n\n\n You\u2019ve probably been told you need to have a 20% deposit ready to go before you consider buying your first home. But, this isn\u2019t the case. <\/p>\n\n\n\n While a larger deposit is great, it\u2019s not your only way to secure a property. In fact, you can get away with as little as a 10% deposit for a property purchase (and in some cases, you can get away with even less).<\/p>\n\n\n\n But here\u2019s the catch: with less than a 20% deposit, you\u2019ll generally need to pay an extra fee known as Lenders Mortgage Insurance (LMI)<\/strong>. This is an insurance policy you pay for that protects the lender in case you\u2019re not able to pay back your loan.<\/p>\n\n\n\n LMI can be borrowed as part of your loan, or paid upfront, depending on your preference and cash reserves. Though, it\u2019s worth pointing out that if you opt to borrow the LMI fee, you\u2019ll be paying interest on that amount for the life of the loan.<\/p>\n\n\n\n The cost of LMI varies between lenders and is calculated with a number of things in mind, including the size of your loan and its value relative to that of the property you\u2019re buying. Though as a general rule, the smaller your deposit (as a percentage) the greater the LMI.<\/p>\n\n\n\n Some see LMI money poorly spent and advocate for the full 20% deposit, whereas others view it as a necessary cost to reduce upfront cash requirements so they can purchase sooner. There\u2019s no right or wrong stance on the value of LMI, it\u2019s really a matter of personal preference.<\/p>\n\n\n\n The \u2018other\u2019 purchase costs<\/strong><\/p>\n\n\n\n Something that\u2019s often overlooked when talking about deposits are the additional costs of purchasing a property that exist outside of it. These include certain unavoidable costs like stamp duty and other government charges, legal\/conveyancing fees, as well as other optional costs such as building and pest reports, bank fees, and buyers agents. Confusingly, these aren\u2019t usually included when talking about your need for a 20% deposit.<\/p>\n\n\n\n Say for example you\u2019re looking to buy a property in NSW for $900,000. Based on the 20% deposit rule you\u2019d need an upfront contribution of $180,000 to avoid mortgage insurance, right? Well, not quite. The true cost of purchasing a $900,000 property in NSW is closer to $940,000 after taking the above costs into consideration. That means that in this case, you would need another $40,000 on top of your existing $180,000 to make up the 20% deposit (or a \u2018true\u2019 deposit closer to 24%).<\/p>\n\n\n\n Alternative ways to get your deposit sorted<\/strong><\/p>\n\n\n\n Even if you don\u2019t have enough for a deposit, there are other ways you might be able to get into the market instead, including:<\/p>\n\n\n\n While there are a few ways to skirt the 20% deposit requirement, lenders still like to make sure you\u2019re able to demonstrate the ability to save. To cover this off they\u2019ll sometimes ask for proof of \u2018genuine savings\u2019 (which is equivalent to a 5% deposit saved over a period of more than 3 months), or if you rent then a copy of your rental ledger is usually sufficient.<\/p>\n\n\n\n A key step to preparing to buy your first home is to get a handle on your finances. This means understanding exactly how much you spend as well as how much you earn. Doing these calculations will help you create a realistic budget you can stick to when saving for a deposit (as well as to meet your repayments and service your mortgage). <\/p>\n\n\n\n Using our online calculator<\/a>, you can estimate your borrowing power, repayments and costs all in one. With these clear figures in mind, you can start to factor in these new costs in your existing budget. <\/p>\n\n\n\n This will take the fear factor out of what your budget will look like with your repayments, and will give you clarity over what you\u2019ll be paying (which is especially important if this is more than what you\u2019re currently paying on rent). <\/p>\n\n\n\n Need some help creating a monthly budget? Here are some of the key categories to factor in when setting up your budget:<\/p>\n\n\n\n So, you\u2019re probably wondering: how much can you borrow for your first home? That\u2019s what borrowing power is all about. By understanding how much lenders are willing to give you, you\u2019ll be able to narrow your property search and set realistic expectations for what you can afford from the beginning. <\/p>\n\n\n\n Generally speaking, your borrowing power is based on how much you earn after your outgoing costs. But, it\u2019s important to remember that different banks will offer different products, which can impact how much they\u2019re able and willing to lend you. That\u2019s why we give our clients a range of what you can expect your borrowing power to be. <\/p>\n\n\n\n What is pre-approval (aka \u2018the green light\u2019) and why is it important?<\/strong><\/p>\n\n\n\n In a nutshell, a pre-approval<\/a> indicates how much a lender is willing to lend you to purchase a property. Pre-approval requires an application to your chosen lender and generally lasts for 3-6 months once approved, as long as your financial circumstances (a.k.a. income, outgoings, and deposit) don\u2019t change. And, if you don\u2019t find your dream home by then, it\u2019s easy to renew.<\/p>\n\n\n\n There\u2019s a stack of reasons why pre-approval is helpful as a first-home buyer, including:<\/p>\n\n\n\n How much you can<\/em> borrow vs how much you should<\/em> borrow<\/strong><\/p>\n\n\n\n Yes, there is a big distinction here. While lenders may offer you a higher figure than you expected, that doesn\u2019t mean you should necessarily borrow the entire amount you\u2019ve been approved for. <\/p>\n\n\n\n It all comes back to your other financial goals. In some cases, the repayments at the top end of your borrowing capacity may cramp your lifestyle and make it difficult to take holidays, invest in shares or even save to start a family. <\/p>\n\n\n\n If you factor it into your budget, taking on a mortgage doesn\u2019t have to mean the end of eating out and weekend getaways. In fact, it can open up the opportunity to build long-term wealth and hit some of your bigger financial goals (like securing an early retirement or building a property investment portfolio). <\/p>\n\n\n\n How to boost your borrowing power<\/strong><\/p>\n\n\n\n So, what steps can you take as a first home buyer to boost your borrowing power? Here are some key steps you can consider:<\/p>\n\n\n\n As a first home buyer, understanding your loan options is key to making the process as smooth and stress free as possible. By finding the right loan for your situation, you can speed up the process of securing your first home and even lower how much you pay over the life of your loan. <\/p>\n\n\n\n Consider a guarantor loan<\/strong> <\/p>\n\n\n\n To put it simply, a guarantor is someone that guarantees a loan <\/a>(or a portion of a loan) for someone else. In most cases, it\u2019ll be a parent or close family member of the borrower and they\u2019ll usually use their own home as security for the new loan. <\/p>\n\n\n\n It\u2019s a big commitment as the guarantor has to be willing to pay off the loan if the borrower isn\u2019t able to meet their repayments.<\/p>\n\n\n\n So, what are the benefits of using a guarantor?<\/p>\n\n\n\n But it\u2019s important to note that guarantor loans are trickier than usual home loans, and they can put significant strain on your relationships if things don\u2019t go to plan. Find out what you need to consider before taking out a guarantor loan<\/a> on our blog. <\/p>\n\n\n\n Fixed vs variable loans: what you need to know <\/strong><\/p>\n\n\n\n There\u2019s a lot to weigh up when it comes to choosing a fixed or variable home loan. In summary, a fixed interest rate loan means your interest rate doesn\u2019t change for a set period of time. On the flip side, a variable loan means your interest rate goes up and down as the market fluctuates. <\/p>\n\n\n\n If you\u2019re looking for peace of mind in knowing your repayments will stay the same and you\u2019re not a big fan of risk, a fixed rate might be a good choice to consider<\/a>.<\/p>\n\n\n\n However, if you\u2019re happy to accept a level of risk and have the wiggle room in your cash flow to meet changing repayments, a variable loan can allow you to access competitive rates when the market changes.<\/p>\n\n\n\n Some other things to consider:<\/p>\n\n\n\n The decision to choose a fixed or variable rate home loan (or even a bit of both) is a highly personal one, and it really is different for everybody. Working with a mortgage adviser that you trust will help you to make sure you\u2019re across all the fine print, you\u2019ve weighed up your options, and you're making a decision based on what\u2019s right for you<\/em>.<\/p>\n\n\n\n Should you consider an offset account?<\/strong><\/p>\n\n\n\n In summary, an offset account<\/a> is a loan feature that is available with certain home loan products. It\u2019s an account that exists alongside your home loan and is used to \u2018offset\u2019 the amount you owe on your loan (and help you save on interest, enabling you to pay off your loan sooner). <\/p>\n\n\n\n Basically the more money you have in your offset account, the more you\u2019ll save on interest. <\/p>\n\n\n\n An offset can be a great way to speed up your repayments if:<\/p>\n\n\n\n Learn more about whether an offset account is the right move for you<\/a> on our blog. <\/p>\n\n\n\n You don\u2019t have to go it alone when saving for your first home. There are a wide range of scenes, grants and incentives available across Australia<\/a> targeted towards first home buyers. Different schemes are available in different states, so check out our full guide<\/a> to learn which programs you might be eligible for in your state. <\/p>\n\n\n\n Securing your first home can feel like an overwhelming task. But, by taking the time to get your finances sorted, understand how much you can borrow and learn about the schemes and loan options available, you\u2019ll put yourself in the best position to make a successful purchase. And if you need a hand to guide you through the process, we\u2019re here to help.<\/a> <\/p>\n\n\n\n
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<\/li>Getting your finances sorted<\/h2>\n\n\n\n
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<\/figure><\/div>\n\n\n\nFiguring out how much you can borrow<\/h2>\n\n\n\n
Navigating home loans <\/h2>\n\n\n\n
<\/li>Understanding the grants and schemes you can access<\/h2>\n\n\n\n
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