Planning to buy your first home? It takes (on average) about five to six years to save a deposit at present. But who's got the patience to save for six years? Today we'll look at four ways you could fast-track home ownership.
They say patience is a virtue. But the narrator/protagonist of the poem that coined that famous phrase was an idle vagabond - not exactly an inspiration for eager homeowners in a competitive market.
So today we'll throw patience out the window and walk you through some ways you could beat the national average of 5.6 years when it comes to saving a house deposit (all while keeping your virtue!).
1. Buy with less than a 20% deposit
It is possible to buy a home with a deposit of less than 20%. Some lenders will take a 10% deposit. Others may accept a deposit as low as 5%.
The downside is that with anything less than 20%, you will usually be asked to pay lenders mortgage insurance (LMI), unless you tap into the scheme in number 3 below.
LMI protects the lender (not you) if you can't keep up the loan repayments.
The downside is that the one-off LMI premium can be pricey, potentially adding more than $10,000 to the upfront cost of buying a home.
You may be able to add the cost of LMI onto your home loan and pay it off over time, although this will increase your repayments and you'll end up paying interest on the insurance premium.
That said, paying LMI offers a way to get into the market sooner, before property values potentially rise higher.
It's a solution that can work for some first-home buyers, and we can explain if it could work for you too.
2. Have a guarantor in place
A guarantor is a person, usually a close relative such as mum or dad, who provides additional security for your home loan.
This security usually takes the shape of the guarantor's home equity. It means guarantors don't need to hand over any cash, and they can often specify what percentage of your loan they will guarantee.
With a guarantor in place, you may potentially be able to borrow 100% of your home's value without paying LMI, although lenders still like to see that you have a strong savings record, often with at least a 5% deposit under your belt.
If you have a close family member who is happy to be your guarantor, talk to us about the different home loan options available.
3. Tap into the First Home Guarantee scheme
No guarantor? No worries. If you can save a 5% deposit you could be eligible for a spot in the First Home Guarantee (FHG) scheme.
The FHG sees the federal government guarantee up to 15% of your loan.
While you won't receive a cash payment, the government guarantee can get you over the line for a loan with just a 5% deposit, and the real sweetener is that you won't need to pay LMI.
Places in the FHG scheme are limited, and eligibility conditions apply. So talk to us to find out if the scheme offers a pathway for you to buy a place of your own sooner.
4. Using your super account to fast-track savings
The First Home Super Saver Scheme could also be worth a look.
The scheme could boost your savings for a deposit by 30% compared to a regular savings account, according to the federal government.?
All you need to do is make voluntary contributions to super - up to $15,000 annually.
Now here's the good bit: voluntary contributions into your super are taxed at only 15%, which is usually less than your marginal income tax rate.
Plus your super account usually has the potential for higher investment returns compared to the interest paid on a regular savings account.?
When you're ready to buy, you can withdraw the money you've voluntarily contributed - up to $50,000 - plus any associated earnings.
Better still, if you're buying with a partner, together you can withdraw up to $100,000 plus associated earnings.?
Why fast-tracking your deposit may be important
Last but not least, it's important to note that PropTrack's national average calculation of 5.6 years assumes a deposit equal to 20% of today's median home prices.
However, it's more likely than not that national property prices will be even higher by the time you've saved up your house deposit - no matter whether that's in three, five or six years.
Long story short, the longer you take, the higher your deposit might need to be.
So the sooner you act, the better off you could be.
If you'd like help, get in touch with us today. We can run through your situation and let you know which of the strategies above might be a good fit.
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