Saving for a home
Building your savings
Buying a house is exciting and life-changing. What's not as much
fun is saving for the deposit. But the more money you put down
upfront, the less you'll have to borrow. There are many ways to
save for a home. With a good savings plan and some discipline,
you'll soon have the deposit for your home.
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 the amount 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.
Ways to build your home deposit
Develop a plan to help you save towards your deposit. Work out
how long it will take you to save your deposit and how much you
need to regularly put aside.
Set, plan, track and manage your savings goals.
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.
See where your money is going by tracking your personal
expenses on the go.
Give yourself some leeway - if your budget is too tight, it is
harder to reach your target. So don't cut out all your fun
expenses. A good idea is to set smaller savings goals along the way
and reward yourself when you achieve them.
Case study: Penny saves her deposit
Penny set herself the goal of buying
her apartment in 4 years time. She looked at her budget and
identified several ways to save for her deposit. She opened a
high-interest online savings account and arranged for part of her
salary to go into it each fortnight. She also reduced her expenses
by cancelling her gym membership, cutting back her mobile phone
bill and limiting herself to one dinner out a month.
After 4 months she had saved $4,000 so she rewarded herself with
a dinner at her favourite restaurant. In 1 year she saved almost
$13,000 and after 4 years she had over $56,000 for her deposit.
Moving 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.
Investing your savings
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
In the Federal budget announced in May 2017, the Government
proposed a new scheme that allows first home buyers to save a home
deposit within their super fund.
Under the scheme, you'll be able to make voluntary super
contributions, within existing contribution caps, and from 1 July
2017 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 earnings.
Withdrawals can be made from 1 July 2018. Non-concessional
contributions and earnings can be withdrawn tax free. Concessional
contributions and earnings will be taxed at marginal tax rates with
a tax offset of 30%.
You can't take advantage of this just yet as laws still need to
be passed to make this change happen. More information is available
on the Government's budget website.
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: 01 Jul 2017