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  • Writer's pictureSam Wilks

Saving for a Home deposit

Buying a home is a significant financial milestone for many, and one of the biggest hurdles to homeownership is coming up with the deposit. A deposit is a lump sum of money paid upfront when purchasing a home, typically a percentage of the total purchase price, from about 5% to 20% of the value and it is generally required by lenders to secure a mortgage. Saving for a deposit can be challenging, but with careful planning, budgeting, and discipline, it is possible to achieve this goal. In this article, we will outline some practical tips on how to save for a deposit for a home.

1. Determine how much you need to save

The first step in saving for a deposit is to determine how much you need to save. The standard deposit is 20% of the home's purchase price. However, some lenders may offer loans with a lower deposit requirement, such as 5% or 10%. It is important to note that the higher the deposit, the lower the monthly mortgage payments will be, and the less you will pay in interest over the life of the loan. Once you have determined your target deposit amount, you can work on creating a savings plan to achieve that goal.

2. Create a budget

Creating a budget is an essential step in saving for a deposit. Look at your current expenses and determine where you can cut back. Consider eliminating unnecessary expenses such as eating out, and subscription services. Instead, cook at home, opt for free entertainment options, and cancel subscriptions that you don't use. Redirect those savings toward your deposit fund.

3. Find ways to increase your income

Another way to speed up your deposit savings is to increase your income. Consider taking on a part-time job or freelance work to earn extra money. You can also look for ways to increase your income at your current job, such as negotiating a pay increase or taking on additional responsibilities that come with a higher pay rate.

4. Set up a specific savings account

It is important to keep your deposit savings separate from your regular checking or savings account. Set up specific savings account for your deposit fund and automatically transfer a portion of your income to that account each month. This will help you stay focused on your goal and ensure that you don't dip into those savings for other expenses.

5. Consider alternative sources of funding

In addition to your regular savings, there are other sources of funding that you can consider boosting your deposit savings. For example, you can ask family members for a loan or gift, participate in a deposit assistance program, or use funds from a superannuation account. However, it is important to carefully consider the potential drawbacks and risks associated with these options, such as high-interest rates, tax penalties, or strained relationships with family members.

6. Look for ways to reduce your housing costs

Reducing your housing costs can also help free up more money to put toward your deposit savings. Consider downsizing to a smaller apartment or renting a room in a shared house to save on rent. Alternatively, you can explore the option of moving to a more affordable area or negotiating a lower rent with your landlord.

7. Save windfalls and bonuses

Whenever you receive unexpected money, such as a tax refund, work bonus, or inheritance, consider putting those funds toward your deposit savings. This can help you reach your savings goal faster and with less effort.

8. Be patient and stay motivated

Saving for a deposit can take time, and it is important to be patient and stay motivated. Keep your goal in mind and celebrate small milestones along the way to keep yourself motivated. Consider setting up a visual tracker of your progress, such as a savings thermometer or chart, to help you stay on track.

Saving and investing in a deposit for a home requires careful planning, budgeting, and discipline. By creating a budget, finding ways to increase your income, setting up a specific savings account, considering alternative sources of funding, reducing your housing costs, saving windfalls and bonuses, and staying patient and motivated, you can achieve your goal of homeownership. Remember, the key to success is to start early and be consistent in your savings efforts.

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