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Savings schemes for first home buyers
 After years of spending up on overseas trips and big nights out, just the thought of saving a huge five figure home deposit can be daunting. But by setting a firm goal, cutting out a few luxuries and dropping your money into some high interest savings accounts, you’ll soon be on your way.
How much will you need?
Lenders require a minimum of 5% deposit of the value of a property, but having 20% will ensure you don’t have to pay mortgage insurance. The current average Australian loan for first home buyers is $246,600. A minimum deposit of 5% is approximately $12330, while 20% is $49320. You also need to factor in a few extras like lender fees (including loan application fees) which can vary between $600 and $1000. There are also legal fees, pest and building inspections etc. Stamp Duty also applies in every state except Victoria, Northern Territory and the ACT, and the one-off $7000 granted under the Federal Government’s First Home Owner Grant Scheme is designed to offset part of this.
How much can you save?
Accept the fact that you will have to be disciplined if you want to achieve your goal.
Set a realistic budget and work out your fixed living expenses like rent and any bills, food, transport and an amount to live on every week. From what’s left you will be deducting things like your car rego, visits to the dentist, money for clothes, haircuts and gifts, which will vary from month to month. It’s also important to factor in some luxuries which can be a reward for all your hard work saving, so you can stay focused without feeling like you’re missing out on too much. If you’re saving with your partner, try and live on one income and save the other. Draw up an Excel document tracking how much you’ve saved and your expenses each month to give you a realistic picture of what you’re actually spending and on what.
What to do with the savings?
The experts agree you need to keep your money where you can’t easily get to it. Most first home owners go hard at saving for 2-3 years, so high interest savings accounts like those offered by ING and Bankwest are a good option. Most take 24 hours to transfer money over which is an added deterrent to dipping in. You can then move chunks into high interest term deposits which range from 30 days to 2 years. Opening a new term deposit every 30 days and adding in the new amount you’ve saved that month can also keep you focused. Automatic transfers from your pay account are also a good idea. Investing in managed funds can be a great long term strategy, but you will need to leave your investment for at least 5 years to gain the most out of it.
Start paying your mortgage now
An August 2007 report by the Australian Prudential Regulation Authority (APRA) indicates that mortgage insurance claims rose a phenomenal 329% in 2006, which is enough to spook any first home buyer. A great way to force yourself to save, which will also give you an indication of how you’ll cope with your mortgage is to pretend you are actually paying it off right now. Most banks and lenders have online calculators to showing how much your repayments will be, so save this amount or the difference between it and the rent you’re currently paying. Bear in mind that you’ll also need a buffer for possible interest rate rises and to cover any extras like water and council rates or strata fees.
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