Welcome to our Get Home Loan Comfy content series where we’ll help you win at adulting by showing you how your once-distant dream of owning a home is completely within reach. Thanks to Bankwest, we've teamed up with Property Journalist and Author, Nicole Haddow, to take you through the home buying journey so you feel comfortable and ready to sign that dotted line—starting with saving for a deposit. And although COVID-19 may have thrown your home loan journey a little off course for now, we're hoping this series can help you jump into the property market when you're ready.
From figuring out a realistic deposit to being ruthless with your budget, here’s how to smash your savings goals so you can actually afford to buy your dream digs.
Go Hard With A Strict Budget And Power Save
We’re big fans of living our best lives seven days a week but when it comes to saving for a deposit, prepare to reign that in a little. Everyone’s lifestyles and budgets might differ but if you’re ruthless, you’ll be surprised to see how fast the numbers stack up, especially if you’re doing it with a partner, family, or friend. For Haddow, she admits she spent big in her twenties, so saving for a deposit certainly had its challenges.
“I had $11,000 worth of credit card debt and almost nothing in the bank—I knew I had to turn things around—so, I moved home with my parents when I turned 30,” she explains. Haddow then dug deep doing what she calls a “power-save”—which meant putting away as much as she could during a 12-14-month period.
“During my 'power-save', I worked to a strict budget. After I deducted my essentials like bills, food and rent from how much I made each month, I had about $150 to spend per week on things like makeup, haircuts, coffee, going for dinner or a drink with a friend and the rest would go into savings. It would depend on how I spent that $150 in that week. If my budget allowed it, I’d still brunch, I just couldn’t brunch all the time. I reduced my spending by ditching my gym membership and went running on the streets instead, plus I dyed my peroxide blonde hair back to brown which meant fewer trips to the hairdresser,” she explains.
Haddow also says it’s not just about reducing what you spend, but increasing the money you make if you can. “I also had a side hustle. I wrote freelance articles on top of my job so I had extra money coming through the door."
Haddow understands that saving for that lump sum might seem like a daunting task, but once she saw the price of entry-level properties and understood what the deposit was, it soon felt like she could pull it off. “The aim was to make a smart purchase that would increase in value so I could then, hopefully, buy something bigger and better in time,” she says.
Figure Out What Your Deposit Percentage Will Be
In an era where property prices have risen faster than our wages, saving a 20 per cent deposit is the goal but for some first home buyers, a five to ten per cent deposit is the reality—and that’s where Lender’s Mortgage Insurance (LMI) comes in. LMI is a fee banks charge to protect the risk they take on you when you have a deposit of less than 20 per cent. It’s a buffer in the instance you default—like if you’ve had one too many smashed avos and you’re unable to make your loan repayments.
The amount you’re charged for LMI depends on how small your deposit is and how expensive the property is. “For example, if you have 15 per cent and you want to buy a $400,000 property, your LMI could be a few thousand dollars. If you only have eight per cent and you want to buy a $600,000 home, it could be a lot more,” explains Haddow. “There are loads of LMI calculators out there to help you do your research and avoid any surprises.”
Calculate The Cost Of Lender's Mortgage Insurance
Loan to value ratio (LVR) is one of the factors that will impact how much you pay for LMI as it’s a percentage calculated by expressing the value of the property against the amount you need to borrow. “For example, if you have a 10 per cent deposit that means your LVR is 90 per cent, so your LMI will be higher than if you had a 15 per cent deposit because that would mean your LVR would be 85 per cent,” Haddow says. Essentially, the higher your deposit, the lower your LVR and the less you will pay on LMI.
To crack the property market and buy her Melbourne apartment, Haddow had to use Lender’s Mortgage Insurance because she had a 10 per cent deposit. “I did this because it enabled me to get into the market faster and the cost of the insurance was quickly absorbed by the rise in value,” she explains. That being said, Haddow urges you to weigh up the pros and cons in your desired location, “Decide whether it’s worth buying with a smaller deposit or waiting longer”.
We get it, the home buying journey might seem daunting at first but it doesn’t have to be. Your first step is to figure out a realistic deposit goal, set a solid budget and stick to it. Get ready, it’s time to put your hard-earned coin into something for your future and Bankwest can help you get there.
Editor's note: This article is proudly sponsored by Bankwest and endorsed by Urban List. Thank you for supporting the sponsors who make Urban List possible. Click here for more information on our editorial policy.
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