Preparing to enter the housing market for the first time can be as stressful as it is exciting, particularly if you have limited experience with managing large amounts of money. No matter what financial stage you’re at, there are a few things you can start doing right now to streamline the process of saving for a house deposit.
Don’t forget the basics
Even when you’re saving for a house deposit, you still need to eat, fill your car with petrol, and do something fun every now and then to prevent yourself from burning out. That’s where rules like the 50:30:20 approach comes in. This formula suggests you allocate half of your income to cover what you need; for example, rent, bills, and food, and put roughly one third towards things you want, like the occasional restaurant outing or a new pair of jeans. The last 20 percent should be funnelled into your savings or used to pay outstanding debts. At times you might feel inclined to put more towards your debts and speed up repayments, as long as doing so doesn’t force you to give up all the things you enjoy.
Before you set yourself a savings goal, find out as much as you can about typical sale prices for the type of house you would like to buy and the tools that can help you to get there. Thanks to lending brokers and similar financial institutions, you can use everything from repayment calculators to tracking your loan application online. Even if you think you know exactly what you want, exploring available houses and neighbourhoods will help you determine whether or not your goals are realistic. It’s also crucial to find out how much you will be able to borrow before you get too invested in any particular home or location; certain suburbs might be out of reach based on the average property price, and knowing more will help save you time (and unnecessary stress). As a rule of thumb, your monthly house payment shouldn’t exceed 28 percent of your income before tax.
Raise your credit score
In the hunt for a home loan, a solid credit score is extremely important for new borrowers. If you have previous overdue bills lurking amongst your credit history, you should start by paying off as much as possible and making it a priority to pay every bill on or before the due date. Having a history of efficiently paying off any kind of significant debt could seriously improve your position in the eyes of your lender. Likewise, if you have been struggling to chip away at a significant debt like your car finance or a student loan, now is a good time to throw as much as you can into it and minimise risks for your lender.
The best way to prepare for mortgage payments is to find out what your mortgage payments might be for a property you’ve got your eye on and start depositing that amount into a savings account. If you’re already paying rent for a property you’re living in, saving the difference between your monthly rent payments and the mortgage payment you’ve researched is a great way to prove your capability to prospective lenders. Best of all, this strategy will leave you with a nest egg of savings you can put towards that all-important house deposit.
A budget for PMI and other unexpected expensesIf a house deposit of 20 percent is too lofty a goal, you’ll need to anticipate extra repayments to cover Private Mortgage Insurance. Like your home loan interest rate, your PMI rate will be affected by factors such as your credit score and the size of your deposit. Other costs to be aware of include real estate taxes, homeowners insurance, and general maintenance around your property. Some of these costs may be rolled into your monthly repayments, but it pays to be prepared for anything which could come out of the blue.