Saving for a home deposit can be both exciting and stressful. I know it’s something no-one wants to hear, but you’ll need to tighten your purse strings if you want to make your housing dream a reality. Familiarise yourself with the housing market, go to auctions and have a look at real estate websites, check out the property section in the newspaper and narrow down what area you’d like to live in as well as what type of property would meet your needs. Once you’ve established what sort of property you want to purchase and have an idea of the market price you’ll be able to evaluate how much you’ll need to save.

How much is enough?

Of course, the bigger deposit you have before you purchase your home the lower your mortgage repayments will be; so what should we aim for? In an ideal world, you would have at least a 20% deposit to put towards buying your new home, however you can buy a home and get a mortgage with as little as 5% deposit.

5% that’s right! Don’t get too excited….it comes with strings attached. If you borrow more than 80% of the property value, you will also need to invest in Lenders Mortgage Insurance (LMI). Lenders use a ‘loan to value ratio (LVR)’ to consider the amount of risk on the loan. This is the calculation of dividing the amount of your home loan by the price of the property. You can calculate your LVR using this link: http://www.lvrcalculator.com/LVR.php The mortgage insurance will be paid as part of your repayments and your lender will give you the details as to how much the premium is, this will be calculated on the loan amount and also depends upon the deposit amount.

Make it affordable

There are 9,000,000 or so dwellings in Australia and finding the right one is an enormous undertaking so you’ll need to narrow it down by considering your household income and affordability. Mortgage repayments in Melbourne are approximately 30% of a dual-income household; it’s a big commitment for the next 10 to 30 years. Lenders have obligations to lend responsibly and it’s important that when applying for a loan the information provided is accurate. Homeownership can create security for you and your family and is often the most valuable asset someone will own. Make sure you don’t put yourself under any undue financial stress by overcommitting yourself. Owning your home should be a pleasant experience so make it affordable and don’t over commit yourself.

Prepare a budget and stick to it!

With median house prices in several Melbourne suburbs creeping up to the million, it’s time to start saving. Focus on paying off your credit cards and personal loans. Open a new bank account to put money aside particularly for your housing deposit; lenders want to see that you can save as it’s a sure sign you will be able to get used to making monthly mortgage repayments. Create a budget and list your monthly expenses, this will give you a clear indication where your money goes and how much you can put aside.

It all takes a little discipline; if your goal and focus is to buy a home, in the words of Arnold Schwarzenegger “You can do it!”.

Please feel free to contact our mortgage brokers with any questions: (03) 5976 8426.