Australians tend to buy property for two reasons — to own a home or invest in property, and some want both. Owning property is so important for Aussies, that we spend, on average, 2.5 hours per week on property-related activities. But getting into the property market isn’t always easy, especially for the younger generation
Contrary to what many believe, the biggest challenge to buying property is not the mortgage repayment. In a competitive property market with low interest rates, paying a mortgage costs less than you think. The real hurdle is saving for a deposit. Not having a big enough deposit is one of the main reasons home loan applications are rejected. Many lenders want a 10% to 20% down payment on a home loan.
So, the faster you can save for a deposit, the sooner you can stop renting and become a homeowner. Here’s how to find extra cash to save towards buying a home.
Make saving a priority
Keen to buy your first home or get started in property investment? Whatever your goal, a good savings plan will get you there faster. The younger you are when you start saving, the sooner you can get your foot in the property door.
1. Cut unnecessary expenses
Achieving certain financial goals often involves sacrifices. If you’re serious about saving for a home loan deposit, your first step is to analyse your current financial situation and take a ruthless approach to trimming the fat. Cutting unnecessary expenses will free up money to put into savings.
2. Increase your earnings
The more you can save every month, the faster you can get your deposit together. Cutting expenses is one way. Increasing your earnings is another. Doing both can help you reach your goal much faster. Look for a higher paying job, get a side hustle, or find creative ways to grow your business if you work for yourself.
3. Invest your savings wisely
Where you direct your savings is also important. There are long-term and short-term investment strategies you can pursue. If you’re new to the investment world, it may be best to consult a financial adviser.
Investing in the stock market, bonds, or managed funds are long-term approaches. If you plan to buy a property within three years, beware of putting too much of your money into shares. The stock market can yield great returns in the long run, but your shares may dip substantially in the short term.
4. Start with a cheaper property
If you’re keen to get into property sooner, start with a cheaper one that requires a smaller deposit. This doesn’t have to be the home you live in. You can flip it and use the profits as a deposit on a better home. Flipping property is when you buy a property in poor condition, renovate it, and resell it at a profit. Flipping properties isn’t for everyone, though. It requires a good eye for spotting properties with potential and fixing up properties can be hard work.
When you’ve saved enough money for a deposit, you can apply for a home loan with more confidence. While there are other factors that are considered in home loan applications, you stand a better chance of approval with a 20% deposit than 5%.
