Buying a first home is a major milestone and an exciting time in people’s lives. However, down payments and mortgages are no small sums, and so it’s important to save up before heading out to shop.
Determining your closing costs
The first step to take is establishing a reasonable estimate of your down payment. The Australian Securities and Investments Commission suggests saving 20% of the ticket price of the home plus enough to cover the other costs of moving. Generally, even if only a small deposit is required at signing, it’s better to try to put more money down up front. Remember: whatever you don’t pay down is then translated into a loan, which typically has a high interest rate and requires lenders mortgage insurance.
Putting down a larger deposit proves to banks that you’re capable of managing your finances and helps them trust you with a big loan, like the ones required for buying a home. It also lowers your loan-to-value ratio. The LVR is the amount of money you take out on a loan divided by the ticket price of your home. A lower LVR makes it more likely that your lenders mortgage insurance will be either very low or entirely unnecessary. Therefore, putting more money down in the beginning will save you large sums in the long term.
Saving for a down payment
It’s important to be realistic about how much time it takes to save for a house deposit. It can take anywhere from 3 years in some parts of the country to more than 8 years in cities like Sydney, resulting in a national average of 4.6 years, according to ABC News.
Creating a savings plan can help you reach your goal and become a homeowner sooner rather than later. There are grants from the government like the First Home Owner Grant that provide up to $20,000 for your house deposit and help reduce the cost of stamp duty. You can also look into the First Home Super Saver Scheme, which allows you to deposit through your super and withdraw up to $30,000 to pay your deposit, and the First Home Loan Deposit Scheme, which helps homebuyers lower their deposit rate and save up to $10,000 in lender’s mortgage insurance fees.
Most importantly, stick to the plan you choose. Set up auto payments, a special savings account or invest your money to grow your assets before making a down payment.
To learn more about first-time homebuying, contact Ray White Surfer’s Paradise today!