How to get your home loan deposit together

So, you’ve decided you’re ready to purchase your own home and take out a mortgage. Congratulations! That’s a big decision to make.

Being approved for a home loan isn’t as easy as simply deciding to get one. There are steps you will need to go through before the bank will even consider your application. Perhaps one of the most important steps you will need to go through is gathering the funds needed for a deposit.

As you may know, lenders are unlikely to lend you 100% of a loan. You will usually need to provide a deposit for the property you wish to own.

In this article, we will discuss the steps you will need to take to plan your home loan deposit and how you can get the funds together.

Work out the home loan deposit size

While you’re saving for your new home, it’s a good idea to keep a close eye on what house prices are like. This will give you a better idea of how much you’ll need to borrow and how large the deposit might be. The usual house deposit size is at least 20% of the total property price. Bear in mind, the house price will exclude expenses such as legal fees, stamp duty, land tax and processing fees, so you’ll need extra set aside for these.

Use our handy calculator to give you a better idea of how much you may be able to borrow.

You should also know that some lenders accept deposits lower than 20% of the property price. However, these lenders may charge you Lenders Mortgage Insurance (LMI) which could add thousands to your repayments over time.

Ways to help save funds for your home loan deposit

1. Set and write down a goal

The first thing to do is to set a goal for yourself and write it down. People who write down their goals are more likely to follow through with them than those who just set a goal in their heads.

2. Track your spending

Now that you’ve set your goal, it’s time to track your expenses and spending habits. Work out how much you spend on a weekly basis and what you spend it on. This will help you work out what costs you can’t avoid (rent, utilities, essential household items etc.) and what you can do without (extra streaming services, a luxury holiday you were planning, etc.).

3. Plan a budget

The most basic formula for saving is to spend less than what you earn. This means working out where your money is coming from, how much you’re earning, how much you are spending, what you can cut back on and what you can’t.

Remember, little things matter just as much as the big ones. Spending less on your lunch, holding off on buying that new TV, using your old car for a little longer, it all adds up.

Try to put aside as much of your discretionary spending as you can for your deposit. It might be a good idea to create a separate savings account. That way you can avoid dipping into what you’ve saved.

4. Work on your existing debts

If you have any existing debts like credit cards, personal loans, student debt or car loans, work on getting them under control as quickly as possible. Prioritise paying off debt with high-interest rates like credit cards. These are all expenses that are eating away at your potential savings, so the sooner you can get rid of them the better.

5. Get rid of the ‘pay yourself first’ mentality

Lots of people try to save money like this: get paid, spend what they want each week, and save what’s left over.

But that system rarely works. Instead, it is much more effective to set aside some money as soon as you get paid and spend the rest on whatever you need for the week.

So, try doing this:

• Work out how much you can realistically save from each paycheck.
• Put that money into your savings account as soon as you get your paycheck. You could create an automatic transfer or talk to your workplace’s finance department about sending a set amount of money to your savings account and the rest to your checking account.
• Spend only what’s left.

What you can use as a deposit

• Your personal savings.
• A cash gift from a relative like your parents.
• For investors and next home buyers, equity from a property you already own.
• Government grants like the First Home Owner Grant or the First Home Super Saver .

Speak with a mortgage broker

If you would like to discuss your options or other strategies that could help secure your home loan, please feel free to contact your friendly Nectar broker here. Whether it’s gathering the funds for your first home, your next home or an investment property, we are here to help you during your financial journey.