1. Work out what you want to buy
Buying your first home is usually about working out what you can compromise on. To find the answer to that, you’ll need to know what’s most important to you in a property. For instance, if you want to be close to work, are you prepared to sacrifice a little space? Alternatively, if you’re looking to accommodate a growing brood, are you prepared to move a little further out just to give yourself room to move?
Once you know why you’re buying, you give yourself the chance to properly price up your options.
2. Work out how much you can borrow
A mortgage calculator can help you determine how much money you can realistically expect to borrow given your current salary, living expenses and debt. Once you understand this, you also have an idea of how much you’ll need to save to buy the kind of property you want.
That said, how much you can borrow and how much you can repay aren’t always the same. Experts recommend that you also take into account potential changes of plan – such as taking time off work to start a family.
3. Focus on your deposit
A lot of people think they need a 20% deposit to purchase a home. That’s not necessarily true. Many lenders allow buyers to purchase with as little as a 5% deposit, so long as they also take out Lenders Mortgage Insurance (LMI).
LMI protects the lender in the event that you can’t meet your home loan repayments and they’re forced to sell your home at a loss. It adds to the cost of purchasing a home, as the premium for this insurance tends to be added as a supplement to each mortgage repayment. However, it can help you get into your home sooner and may actually save you money in the long run, especially in a rising market.
But remember, you’re not just saving for a percentage of the purchase price. There are likely to be other upfront costs, such as stamp duty, solicitor’s or conveyancer’s fees and removalists costs that you’ll need to pay. You should also make sure that you’ve saved enough to cover these.
4. Factor in government grants
Don’t forget, you may also be entitled to grants and concessions towards the cost of your home, especially if you’re a first home buyer. Most states and territories offer a first home owner’s grant to first time buyers, especially if they’re purchasing a new home. Many lenders will let you count a FHOG towards your deposit.
First home buyers are often also entitled to generous stamp duty concessions, sometimes regardless of whether or not they’re buying a new or established home.
These payments and grants can help you get into your home sooner. QLD: Up to $15,000 for new builds up to $750,000 for contracts dated October 2012 to 30 June 2016 or 1 July 2018 or later and $20,000 for contracts dated from 1 July 2016 to 30 June 2018.
5. Start a savings plan
Once you have an idea of how much you need and how much you may be entitled to, you can start to really knuckle down and save. There’s no sugar coating it – this may involve sacrifice. For instance, you may have to cut back on those pricey dining and entertainment options, cut the overseas holidays and generally rein in your spending.
But before you just begin slicing your spending, take a systematic approach. For instance:
- Record and analyse your expenses to see exactly where your money goes and where you can cut. - Research all of your service providers from electricity to supermarkets and make sure you are getting the best deal in every aspect of your life. Be prepared to switch where you need to. - Draw up a new budget that keeps discretionary spending to a minimum. (Make sure you allow yourself a little money to spend.) - Prioritise putting money towards your home deposit. A good way to do this may be to open up a new high-earning savings account and set up an automatic withdrawal into it, every pay-day. Pay off as much debt as possible. This will increase your borrowing power and reduce the amount of money leaving your bank account in the form of interest payments.
If you really want to ramp up your savings, you could even consider making contributions via the First Home Super Saver Scheme. This lets you make voluntary contributions of up to $15,000 a year from your pre-tax income into your superannuation. You can then apply to have these contributions released so that you can use them towards the cost of your home.
6. Consider bigger changes
If this isn’t enough to get you into your home, you may need to look at making some bigger changes. This might include moving back in with your parents, subletting a room in your current home or even starting a second job or side hustle.
Whatever you choose, tell yourself it’s for a limited time and do what you can to make sure that’s the case.
7. Keep an eye on the bigger picture
Finally, it always pays to look at the bigger picture. If you find your commitment wavering, take some time to visualise yourself in your new home and imagine how good it will feel. No matter what sacrifice you need to make in the short term, remember it’s likely to be worth it in the long-run.