Saving for a home
Building your savings
Buying a house is exciting and life-changing; saving the deposit
is a little less fun. But the more money you put down upfront, the
less you'll have to borrow.
Here are some tips to help you save your deposit faster, so you
can move into your own home sooner.
How much do you need to save for a
Work out what you can afford
Be realistic. You may need to consider a smaller property,
an older property, or a property in a different area, just to get
you started in the property market.
Work out how much you can afford to borrow.
Here is an example of what your calculations might look like
once you work out how much you can afford to borrow:
Amount you can afford to borrow + deposit saved - fees &
charges* = Amount you can spend on a property
To work out how much you need for a deposit, your calculation
might look like this:
Amount you need to buy the property + fees & charges* -
amount you can afford to borrow = Deposit you need to save
Check out property prices
The property market is always changing. To get an idea of
property prices in the area you want to buy:
- Have a look at online real estate websites
- Go to auctions
- Read the property section in your local newspaper.
Check your loan to value ratio
When thinking about how much to save, check your loan to value ratio
(LVR). This is calculated by dividing the amount of your home loan
by the purchase price (or appraised value) of the property.
Lenders use your LVR to gauge how risky it would be to give you
In general, the higher your LVR, the higher the risk the lender
will not be repaid if you default on the loan and they have to sell
the property. Having a high LVR may also affect your ability to
refinance your loan later on, and you may have to pay mortgage
insurance again if the LVR on the new loan is high.
Usually lender's mortgage insurance (LMI) is payable if your LVR
is above 80%. This is a one-off insurance premium to protect the
lender should you default on your home loan.
Some lenders also use your LVR to work out the interest rate on
your home loan. For example, if your LVR is more than 80%, you
could be charged a higher interest rate than a borrower with a
lower LVR. This could make a big difference to your repayments, so
it is important to save as much as you can towards a deposit to
reduce the size of your loan and try to get your LVR under 80%.
Case study: Jade works out her loan to value ratio
Jade wants to buy a one-bedroom apartment. She estimated this
will cost $500,000 in her preferred area. After doing a budget, she
calculates she could afford to take out a $450,000 mortgage, so
would need to save a deposit of $50,000 plus purchase costs.
She checked her loan to value ratio:
$450,000 loan ÷ $500,000 property value = 90% LVR
With an LVR above 80%, Jade realises that she will be charged
lender's mortgage insurance (LMI) by her lender, so she added this
to the estimated costs she needs to save for.
Fast ways to build your home
Develop a plan to help you save your deposit. Work out how long
it will take you to save the amount you need, and how much you'll
have to put aside each pay.
Set, plan, track and manage your savings goals.
Savings goals calculator
Cut back on the extras
The easiest way to see where you can cut back is by doing a
budget. Write down your essential costs, such as rent, bills
and food, and subtract this amount from your income. What is left
over is what you could potentially save for your deposit.
Give yourself some leeway - if your budget is too tight, it will
be harder to reach your target. So don't cut out all your fun
expenses. It's a good idea to set smaller savings goals along the
way and reward yourself with low-cost things you enjoy when you
Visit our webpage for some ideas on simple
ways to save money.
Move back into the family home
While it may not seem that appealing, many young people choose
to move back into the family home while they are saving for their
first house. Rent is likely to be one of your biggest expenses, so
if you can cut this right down, you could increase your savings
Get a high interest savings account
Once you know how much you can save, make your money work for
you. If you leave it in your everyday transaction account, you
might be tempted to use the cash. You will also earn less interest
than you would by transferring your savings to a
high-interest savings account.
If you find a savings account that offers bonus interest
for every month you don't make a withdrawal, you'll be less likely
to touch the money unless it's an emergency.
Automate your savings
Boost the balance in your savings account by transferring money
to it as soon as you get paid. You can set up automatic transfers
to your savings account online, or you can also ask your payroll
department to send part of your pay to your savings account.
Automatic transfers allow you to 'set and forget', knowing that
your savings are growing without you having to transfer them
manually every time you get paid.
Have you thought about investing your savings in shares or a managed fund?
This is a good idea only if you plan to buy your home in a few
years time because these investments are suited to long-term goals.
For more information see investing.
First home super saver
The first home super saver (FHSS) scheme allows first home
buyers to save a home deposit within their super fund.
Under the scheme, you can make voluntary super
contributions within existing contribution caps. Up to $15,000 of
those voluntary contributions made in a financial year can be
withdrawn to purchase your first home. The maximum that can be
released is $30,000 in total, plus an amount that represents deemed
Non-concessional contributions can be withdrawn tax free.
Concessional contributions and total earnings will be taxed at
marginal tax rates with a tax offset of 30%.
More information is available on the Australian Taxation
Buying a home is a big step and it's easy to be
daunted by the large sums of money involved. With careful
budgeting, saving money towards your own home is made much
Last updated: 02 Aug 2019