How Much Deposit Do You Need For Your First Home
Buying a home of your own is the great Australian dream and it’s a dream that is looking more like a reality for many Aussies these days. With an economy that’s on the upswing and government schemes like the First Home Owner Grant or Western Australia’s Keystart initiative, owning your own home is within your reach.
Thinking about purchasing your first home can be equally exciting and intimidating. First time home buyers have been told they will need to scrimp and save for years to afford the deposit, foregoing smartphones, smashed avocado toast, and $4 coffees. They have been told to get a second job, skip the fancy wedding, and wait to have children. Family and friends have advised them to save 10% of the purchase price before even contacting a real estate agent.
More than a third of young Australians are saving to buy their first home within the next three years. Presumably, they have listened to this well-intentioned advice and decided to forge ahead despite the sacrifices they may have to make. Melanie Evans, from ING Australia, says that these young investors want “the security and financial stability that owning a home offers” and a recent ING report shows that 57% of them are willing to scale back on luxury purchases to save for a deposit. This same report shows that a majority of these prospective home buyers aren’t sure how much is needed for a home deposit and those who ventured a guess thought they would need to save an average of $76,000 before looking at properties.
The good news is that there are many incentives like transfer fee concessions and government grants available to first-time home buyers that can significantly reduce the amount needed for a deposit.
So, how do you decide how much you can afford to spend on a home and how much money you will need to save for a deposit? The Australian Securities & Investments Commission offers these calculations to help determine your purchasing budget:
- Amount you can afford to borrow + deposit saved - fees & charges = Amount you can spend on a property
- Amount you need to buy the property + fees & charges - amount you can afford to borrow = Deposit you need to save
The fees and charges they list in the formulas include legal costs, government fees, title and registration fees, a home inspection, and several types of insurance, such as property insurance and lenders mortgage insurance.
While the average first-time home buyer may not need to save 10% of the purchase price to get the key to the front door, the bigger the deposit you make, the lower the interest rate you’ll pay. A deposit of 10% or more will eliminate the need to pay lenders mortgage insurance as well.
The lender however, might have a different idea than you do about how much you can afford to borrow. Going through the pre-approval process will show you how much you can expect the bank to lend you based on your income, living expenses, and credit profile. Those with negative credit can expect to pay higher interest rates on their home loans than those who always pay their existing loans on time. Getting pre-approved for a home loan helps you determine not only how much you can realistically afford, but will also give you peace of mind knowing that a lender is prepared to give you a home loan when you are ready to buy.
Smart Home Deposit has a calculator that helps you estimate how long it will take you to save for your dream home based on the price of the house, your current savings, and the average annual projected return rate for money you deposit monthly in the portfolio of your choice.
Smart Home Deposit’s investment solution is a great way to achieve your financial goals. Our team of professionals creates customized portfolios for conservative investors to calculated risk takers, and every investment option in the past has offered better returns than the banks. You can accept the portfolio they suggest or choose another type based on your risk profile and timeframe. Once your application has been processed, you’ll make your first monthly deposit. This, and all subsequent deposits are invested using a method called “dollar cost averaging” in which more shares are purchased when the prices are low and fewer shares are purchased when the prices are high. This method helps protect investors against the fluctuations of the market. Whether it’s your first home or fifth home, Smart Home Deposit can help you save the deposit you need with their helpful tools. Visit the ‘How it Works’ page to find out how they can help you save for your dream home!
Whether it’s your first home or fifth home, Smart Home Deposit can help you save the deposit you need with their helpful tools. Visit the ‘How it Works’ page to find out how they can help you save for your dream home!