How to Quickly Save for a Home Deposit

For many first-time home buyers, saving for a deposit is one of the biggest hurdles in entering the property market. It can take years to save enough, especially when juggling other living expenses such as rent, utilities, and groceries. According to recent research by ANZ-CoreLogic, median-income households would need to save for over 10 years just to accumulate a 20% deposit. This lengthy saving period can make the dream of homeownership feel distant for many Australians. However, with the right strategies in place, it's possible to accelerate the savings process and get closer to securing a home.

How to start saving for a house deposit

When saving for a deposit, it’s essential to have a clear goal in mind. Start by determining how much you can afford to spend on a property. Using a borrowing power calculator can be an effective way to assess your budget. Once you have a figure for your property purchase, you can calculate the required deposit size.

Most lenders prefer a deposit of at least 20%. While it’s possible to buy a property with a smaller deposit, Lenders Mortgage Insurance (LMI) is typically required for deposits less than 20%, as it covers the lender for the extra risk.

For example, if you can afford a $600,000 property, a 20% deposit would be $120,000. You can break this down further to determine how much you need to save each fortnight or month and how long it will take to reach your deposit goal.

However, saving for the deposit is only part of the equation. Don’t forget about the upfront costs associated with buying a home, such as stamp duty, conveyancing fees, application fees, and moving costs. These expenses should be factored into your savings plan to avoid any unexpected surprises.

Once you’ve accounted for the deposit and other costs, you’ll have a clearer savings goal to work toward.

Budgeting and managing your finances

After setting your deposit goal, it's time to carefully review your spending habits. Start by analysing your transaction history to identify both necessary and fixed expenses, as well as non-essential ones.

Budgeting doesn’t mean cutting out all non-essential spending, but rather finding ways to reduce unnecessary costs and reach your deposit goal faster. For example, consider spending less on takeaway food, cutting back on online shopping, or temporarily suspending subscription services.

You can also explore ways to lower your fixed, necessary expenses. For instance, compare energy providers to find a more competitive deal or shop around for a cheaper car insurance premium.

Once you’ve reviewed your spending, create a budget that helps you stay on track towards your savings goal. It might be a good idea to seek guidance from a financial advisor to ensure you’re on the right path.

While budgeting, it’s also smart to focus on paying off existing debts like personal loans, car loans, or credit card debt. Eliminating these debts will free up more money to put toward your deposit and boost your borrowing power when you apply for a home loan.

Speed up your savings

Creating a budget is an excellent way to streamline your expenses and redirect those savings toward your home deposit. However, if you're looking to boost your savings even further, there are several strategies you can explore to increase your income.

One option is to start a side hustle or take on freelance work. If you have a hobby or skill that you can monetise, turning it into an income stream while saving for your deposit can significantly increase your earnings.

Alternatively, consider giving your home a spring clean and selling unused items for extra cash. This is a great way to declutter and you might be surprised at how much money you can make from things you no longer need.

While your savings accumulate, you can also make your money work for you by investing in a high-interest savings account or term deposit. Setting up an automatic transfer into your savings account can help you steadily grow your funds without much effort, ensuring you're consistently moving closer to your deposit goal.

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How to save for a house deposit while renting

As a renter, saving for a deposit while covering your rent can be tough. If you're finding it difficult to balance both, it might be worth exploring cheaper rental options or alternatives to help you save more efficiently.

If you’re living alone or with a partner, consider moving into a share house, renting out a room (if allowed), or downsizing to a more affordable rental. While these options may require some compromise, they can be temporary solutions that help you save faster and reach your deposit goal sooner.

Many aspiring homeowners even choose to move back in with their parents or another family member for a short time. This can significantly reduce your rental costs and help cut down on other living expenses, such as utilities and groceries, giving you a greater ability to save for your home deposit.

How to stay motivated while saving

Saving for a big goal, such as a house deposit, requires time and dedication. One of the most effective strategies is to break your overall goal into smaller, more manageable milestones. Achieving these smaller goals will not only make your larger goal feel more achievable, but it will also keep you motivated to stay on track.

You can also celebrate each time you reach one of your savings milestones, helping you stay positive and focused on the bigger picture.

If you're a fan of visualising your goals, consider creating a vision board or setting regular reminders to help keep you motivated and accountable throughout your savings journey.

Take advantage of extra help

Saving for a large deposit on a home can be a significant challenge for many first-time buyers. However, there are several options available to help you reach your deposit goal more quickly.

One valuable option is the First Home Super Saver Scheme (FHSSS), which allows first-home buyers to make additional contributions to their superannuation to save for a home deposit. When you’re ready to purchase, you can withdraw the money from your super and use it towards your deposit. The advantage of this approach is that superannuation is taxed at a lower rate than regular income, enabling you to save on taxes and reach your deposit goal faster. Keep in mind that eligibility requirements apply, and there are limits on how much you can contribute and withdraw.

Another helpful scheme is the First Home Owners Grant (FHOG), which provides first-time buyers with a grant to use towards purchasing or building a new home. The grant amount varies depending on the state or territory, so it's worth checking the specific details in your area.

Additionally, if your family is in a position to help, a financial gift towards your deposit can give you a significant head start in entering the property market sooner.

Can I get a home loan with a deposit of less than 20%?

While it's possible to secure a home loan with a deposit of less than 20%, you’ll likely have to pay Lenders Mortgage Insurance (LMI). LMI is a one-off fee typically charged to borrowers with a Loan to Value Ratio (LVR) of 80% or higher, meaning you have a deposit of less than 20%.

As the borrower, you're responsible for covering the cost of LMI, even though it's primarily designed to protect the lender in case you're unable to repay your loan. The cost of LMI varies depending on your home's purchase price and deposit size, with lower deposits and higher home prices resulting in higher LMI costs.

That being said, there are instances when paying LMI could be worthwhile. For example, if you’ve found your dream home but don’t yet have a 20% deposit, paying LMI may be a good option to secure the property before it’s snapped up by another buyer.

There are also ways to avoid paying LMI, even with a deposit of less than 20%, including:

Government schemes: There are various government initiatives available, such as the First Home Guarantee, Regional Home Guarantee, and Family Home Guarantee. These schemes help low-deposit buyers avoid LMI. The upcoming Help to Buy Scheme will also offer an opportunity for buyers with smaller deposits to enter the market without LMI.
Guarantor loans: With a guarantor loan, your parents or another close family member can use the equity in their property to secure your home loan, making up the remainder of the 20% deposit.
Financial gifts: If you receive a gift from family, you may use this toward your deposit, as long as there's no obligation to repay the money. You will also need to show genuine savings during your application process.
Professional home loans: Certain lenders waive LMI for specific professions like doctors, dentists, lawyers, and engineers due to the typically stable employment and higher income these professionals enjoy.
Specialist lenders: Some lenders offer loans without LMI for borrowers struggling to come up with a 20% deposit. It’s worth speaking with a home loan expert to find a lender that best suits your situation.

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