How to Save for a First Home Deposit in Australia
Saving for your first home deposit is one of the most significant financial goals you'll undertake, but with careful planning and discipline, it’s an achievable milestone. In Australia, a deposit of at least 20% of the property value is often recommended to avoid additional costs like Lender’s Mortgage Insurance (LMI), but many lenders offer loans with deposits as low as 5%.
In this guide, we’ll outline practical strategies for saving your first home deposit, from budgeting tips to leveraging government schemes and choosing the right savings tools.
1. Understand How Much You Need to Save
The first step in saving for a home deposit is determining how much you’ll need. This depends on the price of the property you’re aiming for and the type of loan you plan to take out.
Key Points to Consider:
Standard Deposit: A 20% deposit is ideal, but many lenders accept as little as 5%. For a $600,000 property, this means:
20% deposit = $120,000
10% deposit = $60,000
5% deposit = $30,000
Lender’s Mortgage Insurance (LMI): If your deposit is less than 20%, you’ll likely need to pay LMI, which can cost thousands.
Other Upfront Costs: Don’t forget to budget for additional costs like stamp duty, legal fees, and inspections.
Use an online deposit calculator to estimate how much you’ll need, including upfront costs.
2. Create a Budget and Track Your Spending
Budgeting is one of the most effective ways to save for a deposit. By understanding your income and expenses, you can identify areas to cut back and allocate more money toward your savings goal.
How to Create a Budget:
Track Your Expenses: Use apps like Pocketbook or MoneyBrilliant to monitor your spending.
Identify Non-Essential Costs: Look for areas to reduce, such as dining out, streaming subscriptions, or discretionary purchases.
Set Savings Goals: Break your deposit goal into smaller, achievable milestones, such as saving $500 per month.
Use the 50/30/20 Rule: Allocate 50% of your income to needs, 30% to wants, and 20% to savings. Adjust the percentages to save more aggressively.
3. Leverage Government Schemes
Australia offers several government schemes to help first-time buyers save for a deposit and enter the property market sooner.
Key Schemes for First-Time Buyers:
First Home Super Saver Scheme (FHSSS)
Allows you to save for a deposit using your superannuation account, benefiting from tax concessions.
You can contribute up to $15,000 per financial year and withdraw up to $50,000 for a deposit.
First Home Guarantee (FHBG)
Formerly known as the First Home Loan Deposit Scheme, this allows eligible buyers to purchase a home with as little as a 5% deposit, with the government guaranteeing up to 15% of the loan to avoid LMI.
First Home Owner Grant (FHOG)
A one-off payment available to eligible first-time buyers purchasing or building a new home. Grant amounts and eligibility criteria vary by state or territory.
Stamp Duty Concessions
Many states offer stamp duty exemptions or discounts for first home buyers. For example, in Victoria, first-time buyers pay no stamp duty on properties under $600,000.
Check your eligibility for these schemes and incorporate them into your savings plan.
4. Open a High-Interest Savings Account or Offset Account
Choosing the right savings account is crucial when saving for a deposit. A high-interest savings account or an offset account can help grow your funds faster.
Features to Look For:
Competitive Interest Rates: Choose an account with a high ongoing rate.
Bonus Interest Conditions: Some accounts offer higher rates if you meet monthly deposit and withdrawal conditions.
Fee-Free Accounts: Avoid accounts with maintenance or withdrawal fees.
Popular Savings Accounts in Australia:
ING Savings Maximiser: Offers bonus interest for meeting deposit and transaction requirements.
UBank Save Account: Competitive rates with no account fees.
Bank of Queensland Smart Saver: Attractive rates for young savers under 35.
5. Cut Back on Non-Essential Expenses
Small changes to your spending habits can make a big difference over time. Focus on reducing discretionary expenses to boost your savings.
Quick Ways to Cut Back:
Cancel Unused Subscriptions: Review streaming services, gym memberships, or other subscriptions you don’t use regularly.
Cook at Home: Save money by preparing meals at home instead of dining out or ordering takeaway.
Shop Smarter: Look for discounts, use rewards programs, and avoid impulse purchases.
Reduce Travel Costs: Use public transport, carpool, or find ways to minimise fuel and parking expenses.
6. Boost Your Income
Increasing your income can accelerate your savings goal. Consider side hustles, part-time work, or ways to monetise your skills.
Ideas to Boost Income:
Freelancing: Offer your skills (e.g., graphic design, writing, tutoring) on platforms like Upwork or Fiverr.
Sell Unused Items: Declutter your home and sell items you no longer need on Gumtree or Facebook Marketplace.
Part-Time Work: Take on extra hours at your current job or a second job temporarily.
Invest in Your Skills: Consider training or certifications that could lead to a higher-paying job.
7. Automate Your Savings
Setting up automatic transfers to your savings account ensures you consistently put money aside without the temptation to spend it.
How to Automate Your Savings:
Direct Deposits: Arrange for a portion of your salary to go directly into your savings account.
Round-Up Apps: Use apps like Raiz or Up to round up your purchases and save the spare change.
Set Savings Reminders: Use budgeting apps to track your progress and stay motivated.
8. Avoid Common Pitfalls
When saving for a deposit, it’s easy to make mistakes that can slow your progress.
Pitfalls to Avoid:
Dipping into Your Savings: Keep your deposit fund separate to avoid spending it on non-essentials.
Ignoring Inflation: Property prices often rise over time, so aim to save more than your initial goal.
Taking on Unnecessary Debt: Avoid new credit cards or personal loans that could impact your borrowing power.
9. Stay Motivated with Milestones
Saving for a deposit can feel overwhelming, especially if your goal is significant. Breaking it into smaller milestones can help you stay motivated and track progress.
Example Milestones:
Save your first $5,000.
Reach 50% of your deposit goal.
Pay off a small debt to free up more savings.
Celebrate each milestone to keep yourself motivated!
Case Study: Sarah’s Savings Plan
Scenario:
Sarah is saving for a $30,000 deposit to buy her first home. She earns $70,000 annually and uses the following strategies:
Budgeting: Allocates 20% of her income to savings, amounting to $1,167 per month.
High-Interest Account: Opens an account earning 3% interest, adding an extra $450 annually.
Government Schemes: Uses the First Home Super Saver Scheme to boost savings with tax benefits.
Outcome:
By combining these strategies, Sarah saves her deposit in just over two years while avoiding unnecessary debt.
Conclusion
Saving for a first home deposit in Australia requires discipline, planning, and smart financial decisions. By setting a clear goal, using government schemes, and making the most of high-interest savings tools, you can fast-track your path to homeownership.
At Mountain Mortgages, we’re here to guide first-time buyers through every step of the process. From understanding deposit requirements to exploring home loan options, our team of experts can help you achieve your dream of owning a home. Contact us today for personalised advice and support on your home-buying journey.
