How to fast-track your savings plan

Budgeting is a great way to work out where your income is being spent and manage your money when saving for a home deposit.

Learn more about factors involved before, during and after setting up a budget.

What to know before you budget!

One of the first things you need to do before budgeting to save for a home deposit is work out what you can afford.

You will need to take in consideration some of the following:

  • Compare property prices in the area that you want to buy – check out auctions, and real estate prices.
  • Calculate the Loan-to-Value Ratio (LVR) – if your LVR is above 80% the lender will most likely charge you a Lenders Mortgage Insurance fee.
  • Lenders Mortgage Insurance (LMI) – if your deposit is less than 20% of the purchase price, take LMI into account.
  • Estimate the mortgage repayments you would need to pay once you have acquired the property.

Knowing what is required when buying a home loan and the expenses involved can save you a lot of time and effort in the long run.

Should I track my spending habits?

It is a good idea to know your income and expenses before starting a budget!

When tracking your spending, initially record everything you spend for one month. This will give you a great idea on how much you spend day-to-day and where your money is spent. Take into account all your monthly bills, rent and repayments and items that you may not purchase regularly.

You should also assess your yearly expenses. These can include larger bills, car insurance, and other irregular expenses that may not be covered in your month long tracking.

There are a number of good mobile phone apps that can help you track incomes and expenses – look around and find one that works for you.

How can I reduce my expenses?

Before you have completed your monthly tracking of spending habits, you will most likely know by then what most of your bills and repayments are like.

With this information, review your monthly expenses such as utilities, car insurance, and other expenses to determine if you can get a better deal. The money you save from these can be put towards your deposit.

Another option is to move back into your family home – rent is usually one of the biggest expenses so this will reduce your total expenses by a wide margin.

However if you are renting, some lenders will assume that the rent money will go towards mortgage repayments in the future. In this case, rent can be included as record of savings with some lenders.

Expenses are into taken consideration when calculating your borrowing power. By limiting your expenses you can improve on how much you can borrow for a home.

How can I reduce credit card spending?

The first step here is to pay off your credit card debt and other small debts.

Some people may find that they are in debt before they start saving, so avoid that situation by quickly paying these debts off! Not only will it give you less to worry about, but it will also cost you less in high interest rate bills associated with these debts.

You should also reduce the amount of credit cards you use!

By closing a credit card, not only are you getting rid of the temptation to use it, but it can also help when you are applying for a loan as some lenders will take these cards into account when they calculate how much you can borrow, regardless of whether they are being used or not.

Credit cards are also taken into account when calculating how much you can borrow for a house. By taking precautions with your credit cards you can greatly improve your borrowing power.

How do I write a savings plan?

Once you have an in-depth record of your spending habits, you can set up a savings plan!

Write down all the essentials such as rent, bills, and food and subtract it from your income (after tax). The amount left is what you could potentially save for a deposit. However, budgeting this way will likely lead to you going back to old spending habits.

Saving is like dieting. If you are too strict with your money and deny yourself some of life’s little pleasures, it is easy to fall off the wagon.

Be realistic about your lifestyle and what you are willing to give up. Plan out a monthly budget, and take into account small pleasures.

How can I adjust my lifestyle?

Follow these tips for a more budget friendly lifestyle:

  • Cook at home instead of eating out.
  • Downsize your coffee to regular instead of large (this can save you a dollar a day).
  • Find free activities – you don’t have to be a hermit whilst saving and never leave the house. Find entertainment that is free.
  • See movies on a cheap Tuesday.
  • Limit the amount of drinks when you go out.
  • Work harder and put extra earnings straight towards savings. As an extra benefit, you will also spend more time working and have less time to spend money.
  • Correct bad spending habits by identifying guilty pleasures and restricting them. Don’t get rid of them fully, just learn to control them.
  • Avoid materialism and be thankful for what you have. Do you really need those new shoes? Do you really need that new TV?

Consider that all the little things add up. Saving a dollar here or there everyday could result in you saving thousands over the year.

How can a budget deadline help?

One of the key things when saving for a home loan is to set a clear deadline.

This has a number of benefits:

  • It will let you know whether you are on track or not – set a due date and create milestones.
  • It helps when things get tough since it is nice to knowing that there is a finish line and sacrifices are not forever.

Be sure to review how you are tracking with your milestones!

Will opening a high interest savings account help?

Consolidating your savings into a high interest account will make it easier to stick to your budget and save money.

It can help in the following ways:

  • Makes it hard to spend your savings. Keeping your savings separate will make it difficult to withdraw money as well.
  • Gives you a clear indication of how much you have saved.
  • Helps you focus when you can see all the money saved in one place.
  • Your money will work for you since you gain interest on what money you have saved.

For first home buyers, consider opening up a Government First Home Savers Account. Unlike other savings accounts, a first home saver account can only be used for when you are saving for your first home.

Each year the Australian government will make a considerable monetary contribution towards your savings deposit each year!

Break your budget down!

Breaking sacrifices into chunks can also be a great way to keep you to your budget. Whilst you might be saving for two years, it doesn’t mean you have to go without small luxuries for that time.

You can break down things into manageable time frames. For example, one week you may restrict yourself to only one regular coffee a day instead of two large coffees. Another week you might decide to have a quiet weekend in and not go out, and so on.

What are some systems I can put in place to save money?

You can set up an automatic savings transfer that deposits money into a savings account on a regular basis without you thinking about it. A great idea is to set it up so money is withdrawn the day after you get paid and is automatically put into your savings account.

This will also reduce the temptation to go out on a spending spree because you will more than likely not see the money before it is gone and transferred into your savings account.

Regular savings contributions look good to the banks as they assess your genuine savings when reviewing your deposit.

Genuine savings are an important factor to consider when determining how much of a deposit you need.

Work together! Budget as a couple

One of the most important things to remember when saving for a home loan with a partner is to make sure both partners take on a budget and save as a couple.

It is important that you are both committed to saving, and are in communication with each other.

What it I fail to stick to a budget?

There are a number of reason people fail to stick to a budget.

  • Laziness: Budgeting is like a diet – it takes some self-discipline and time to learn to stick to it.
  • Unforeseen circumstances: Anything can happen – you can get sick, lose your job or worse!
  • Different strategies work for different people: If one system of budgeting does not work for you, then keep trying a new one until you find one that works for you.

If you do fall off the wagon, just pick yourself up, review your budget, and get back to saving. Just remember, saving a little is better than saving nothing! Don’t be too tough on yourself, but stick to it all the same.

What are some other money saving tips?

There are some other things that will also help when saving:

  • Increase your income: If you want to save more money, then why not earn more money? Put in some extra hours, look for a higher paying job, or ask for that raise that is well overdue!
  • Plan for the unexpected: Set up an emergency fund in which you can deposit money for unexpected events. These can include unexpected medical bills, car repairs or loss of employment.
  • Sell what you don’t need: Gather all the things in your house that you don’t use and sell them. The money earned can be put towards deposit savings.

What costs do I need to consider when saving for a house?

Other things that you will need to consider when saving for a home deposit is the other expenses involved when buying a home.

These can include the following:

  • Stamp duty
  • Government rates
  • Home maintenance
  • Moving expenses
  • Potential renovations
  • Furniture once you have moved in

Keep these in mind when saving for a home deposit!

Should I apply for income insurance?

Once people have a mortgage, one question they ask is how you will pay mortgage if you get injured or sick and can’t work? Most people have ten days of sick leave a year, but sometimes it is not enough.

Therefore you should use this opportunity to review income protection insurance. Allocating money for an income protection policy, which will pay 75% of your income up to age 65, is important.

It is as important as taking out home insurance to protect against fire, etc. Even if something happens to the individual, you are covered!

With this type of insurance, you don’t have to worry about accidentally missing a mortgage repayment due to illness or accident. The great thing is that income protection insurance is tax deductible.

Get your dream home!

Once you have saved enough of a deposit and feel ready to apply for a home loan, feel free to contact us.

At Home Loan Experts, we excel in helping people get their mortgage approved. Our mortgage brokers know all the major lenders and their lending policies and can help you find the package best suited to your situation.

Call us today on 1300 889 743 or enquire online to speak to us!

  • Rubensohn, B

    These tips are quite helpful and I’ll be sure to follow them. But what if I want to buy a bit earlier than planned? As I haven’t purchased property before, can I use the FHOG that I should be eligible for as part of my deposit?

  • Hi Rubensohn, you can use the FHOG as part of your deposit but if you want it to be your deposit fully then it’s normally not enough on its own.

  • Teach

    I’d been saving up for a mortgage but I fell ill and needed to be hospitalised for 2 weeks. I have 2 defaults in my credit file because of this. Will I have to put a hold on my hopes and dreams to buy a home now? :(

  • Hey Teach,

    If you have a small default for less than $500 and it has been paid more than 6 months ago then you may be able to borrow up to 90% of the property value and in some cases 95% of the property value.

    If you have any unpaid defaults then specialist lenders may consider your application and you may be able to borrow up to 90% of the property value as long as the defaults have been fully paid before the loan is approved. If you can provide good reasons backed up by strong evidence for having said defaults on your file then it should help loads. You may have to pay a slightly higher interest rate, however, we can later help you refinance back to a major lender at a standard interest rate when your credit history has cleared.

  • Teach

    Well both defaults were of around $400 and they have been paid though only a few months ago. I will call to see what your brokers have to say about this. Thanks.

  • shaggy

    Hi, I have saved up a 10% deposit to buy a home but my son, who’d been abroad with his mum, has just returned to live with me for a few years. Before this, I had no dependents but now that I have my son back, will this hamper my home loan application much?

  • Hi shaggy,

    Unfortunately, having dependents can significantly affect your borrowing power. This can mean that the deposit you’ve saved isn’t enough and / or you may be declined if you can’t meet the serviceability requirements of the bank. Please check out the dependents on borrowing power page to find out the details regarding this and also how you can improve your borrower power despite this:

  • D Armstrong

    Can a gift that has been held for 3 months be considered genuine savings?

  • Holding a gift in a savings account is technically not considered to be genuine savings but we know lenders that will accept this even though you didn’t save it yourself.

  • bowen

    Can we get no genuine savings investment loans?

  • No genuine savings loans are usually only available for buying a home. So it’s highly unlikely to find lenders that offer them when it comes to investments, purchasing vacant land or constructing.