How To Budget For Your Home Loan

The process of saving for a home loan deposit can be challenging for first-time home buyers. Budgeting basics can help make saving easier, allowing you to buy sooner.

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How To Budget For Your Home Loan

Saving for a home loan deposit can be challenging for first-time home buyers. Budgeting basics can make achieving savings goals easier, allowing you to buy sooner.

Budgeting requires a change in mindset: you must be willing to sacrifice, stay focused on your goals, and work hard toward progress.

When you save up for a deposit, it takes real determination. But that only makes the achievement sweeter.

Basics for saving for a home loan deposit

To save for a home loan deposit, start by planning ahead. Before you even begin to budget, there are a few things to consider.

1. Decide What You Want

Before you save up for a property, you need to be clear on what you’re saving for. You don’t have to have an exact plan or listing — but it can help you to visualize what you want in a new home. Think about the number of bedrooms, the suburb, yard space, and your favorite places to visit. Sometimes, it’s hard to stick with savings goals, but pictures are a way to help you visualize what you want in a new home — take some time to think about your property goals and create a picture in your mind of your perfect house.

2. Work Out How Much It Will Cost

As you research the market and work out what kind of property you want, remember that the listed price is not the only cost associated with a property. Other costs can include maintenance, labour costs, possible renovations, administrative costs and even insurance.

This may take some time, but it’s worth devoting your time to it. The internet offers a wide range of tools and property market experts available to help you with understanding property prices and possible ongoing costs – so it makes sense to do your research.

3. Consider What You’re Entitled Too

For first homebuyers looking to purchase a new or newly renovated home, there is the possibility of offsetting the amount of GST through the First Home Owner Grants (FHOG). There are some important eligibility criteria to consider before applying for this tax break.

First home buyers may be eligible for exemptions or concessions on transfer duty under the First Home Buyers Assistance Scheme (FHBAS). Depending on the property’s value, the amount of Transfer Duty (QLD, TAS and WA) or Stamp Duty (everywhere else) you have to pay could be reduced or waived.

There are a few grants available to first home buyers, but these generally don’t apply if you’re purchasing an investment property, have owned your own home before and/or are co-purchasing with someone who has.

4. What Is Your Deposit Amount

When you take out a home loan, it’s generally a good idea to pay as much as possible up front. This reduces the amount of interest you have to pay over the life of the loan. The size of your deposit may also determine your total borrowing power — that is, how much you can borrow and make repayments on.

Keep in mind that your savings goal may change as you continue through the next few steps, but having a rough guide can help. You should also consider your Loan to Value Ratio (LVR). Put simply, this is the value of the property minus the deposit. So, for example, if you put down a 5% deposit, you will have a high LVR made of the remaining 95% of the value.

5. What Is Your Current Deposit Saving Amount

When you’re planning for the future, it’s easy to overlook assets that can be turned into cash quickly, such as investments, shares, valuable assets like cars and real estate, and superannuation.

As you consider your assets and liabilities, list other assets that could potentially contribute to your deposit and other expenses. A larger deposit can sometimes help you negotiate for a lower interest rate and save you money over the loan term.

6. How Much More Do You Need To Save

To calculate your savings goal, you will need to take what you need for a deposit and subtract the amount of cash you already have in your savings account.

7. Weekly Budget Amount

Finally, for those who find making a budget difficult, Aussie has created a budget planner to help you. It can help you plan your income, your spending and how long it will really take to achieve your savings goals.

Identify areas where you can reduce your living expenses. Your non-negotiables—such as rent, insurance, and loan payments—are unlikely to change much. Perhaps other expenses such as going to the movies or buying new clothes could take a back seat.

A home costs more than a deposit

Acquiring a home loan is more than just saving for a deposit. There are significant ongoing costs, interest to pay, and monthly repayments to make.

Some individuals may find it more cost-effective to buy an existing home, while others may prefer the challenge of building a new house—but the choice will depend on each person’s individual circumstances.

Your My LMI Group broker will work with you to determine the appropriate financial planning strategy for your particular circumstances and current stage of life.

If you are confused about your options for financing a home, My LMI Group can help you understand the mortgage mumbo-jumbo and explain how things could work for you.