Andrew Winter shares his top tips with one of our viewers to help you save for a home loan quickly.
Hi Andrew. My fiancé and I are saving for our first home. What would be your top tips for us? Also wondering what you would suggest as a minimum deposit that we should aim to save for?
As a general rule of thumb, a lender will require you to have a genuine savings deposit of at least 5% of the purchase price of the property. These savings can be shown through savings in a bank account held or accumulated for at least three months, term deposits held for at least three months, shares or managed funds held for at least three months as well as equity in real estate (though this varies depending on the lender).
That said, if possible, it is great to have a deposit of 20% or more as this will help you to avoid costly Lenders Mortgage Insurance.
Banks and non-banks will require homebuyers to take out LMI if they are borrowing more than 80 per cent of a property’s value when taking out a home loan. This is done to protect the lender against the risk associated with providing homebuyers with a loan in the event of a default.
The more you can put down as a deposit, the less you'll have to borrow. That means you'll pay less in interest over the lifetime of the loan, and your repayments will be lower over a set term.
As for savings tips, there are a few things you can do to help you save your home loan deposit faster, including:
· Spend less than you earn: it might sound simple, but putting together a detailed budget can help remove any unnecessary spending. It is important to be realistic when setting your savings target and allow for the odd treat now and again. Those little rewards could be exactly what you need to keep motivated.
· Become a VIP member: Sign up to be a VIP member at your regular shopping spots. Whether this means you will get a few dollars off per ticket on a trip to the cinema, receive sale prices at your favourite clothing stores, or earn a supermarket discount voucher for collecting points, every little bit counts.
· Savings landlord: Ask your parents or your fiancé’s parents to oversee your savings plan. Ask them to check in with you regularly to help keep you on track.
· Home cooked meals: Rather than buying your lunch each weekday, why not prepare your own meals by making a weekly trip to the supermarket – just make sure you write a shopping list before you go as this will help you to avoid buying unnecessary items.
· Waste not, want not – Eliminate some of the little luxuries that you can do without. Try cutting back on takeaway coffees, fashionable items that have a short life-span, pay-television, internet or data usage etc. You could even change your social plans and invite friends and family to get-togethers at your place rather than going out where you will be tempted to spend more money.