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The best tips for saving for a house deposit

March 22, 2022
by
Rosemary Parsons

Looking to buy your first home? Or maybe you’re thinking of upsizing or downsizing your family home?

Whether this means taking out a bridging loan or new home loan, you’ll need to have a deposit saved based on the purchase price of your new property.

Saving for a house deposit can be challenging. Recent research from Finder shows that the average time to save for a house deposit is 8+ years in Sydney, 7+ years in Melbourne, and 5+ years in Canberra. On average, Australians need to save $106,743 for a 20 per cent deposit to secure a mortgage.

On average, Australians need to save $106,743 for a 20 per cent deposit to secure a mortgage.

While these figures may seem daunting, there are practical strategies you can use to achieve your goal. To help, we’ve rounded up 10 of the best tried-and-tested saving tips for your house deposit.

1. Work out your goal amount

To determine how much you’ll need to save for a house deposit, it’s important to know how much you’ll potentially be able to borrow. An online home deposit calculator can help you estimate your loan amount and monthly repayments.  

Once you’ve estimated your home loan, you can calculate your deposit. The ideal home loan deposit is 20 per cent of the purchase price of the home. Large deposits increase your chances of approval by showing lenders you can manage your money. 

Deposits less than 20 per cent incur Lenders Mortgage Insurance (LMI), a premium that is paid as a lump sum or added onto the loan. 

Bridging loans also require a house deposit, typically of 5 to 10 per cent. 

Keep in mind the hidden costs of buying a home. Besides the purchase price itself, there are a range of fees, charges, and duties when buying property. If you plan to hire a buyer’s agent, you will also need additional savings. These are in addition to your deposit and should be factored into your overall budget.  

2. Track your spending

Tracking your spending gives you a clear picture of where your money goes day by day when saving for a house deposit. You can start by setting an audit period, say the past 90 days, to incorporate most of your recurring expenses. Analyse your transactions over this time to see how much you are spending, and on what. 

Another way is to track your spending as you go over a chosen period. Start by recording your incidental daily spending, then build in your weekly and monthly bills. If this sounds a little tedious, there are many budgeting apps designed to do the tracking for you.

Tracking your spending gives you a clear picture of where your money goes day by day when saving for a house deposit.   

The key to tracking your spending is consistency over a significant time. That way, you may uncover unnecessary expenses such as long-forgotten subscriptions or account fees. Don’t forget, even the smallest of expenses add up over the long term!  

3. Set a budget

It may seem obvious, but setting a budget—and sticking to it—is crucial to saving for a house deposit. After tracking your transactions, measure your spending against your income to work out where to set your spending limit. 

Allocate money for fixed expenses (e.g., current mortgage repayments or rent and utilities), debt (e.g., credit card), and unexpected expenses (e.g., car repairs), then calculate how much of the left-over amount you can afford to put into saving for a deposit. While you may need to work on being more frugal with your spending, it’s also important to make sure there’s a little wiggle room in your budget for the occasional treat.

4. Cut out unnecessary expenses

Your budget will reveal if you need to cut spending to save. After all, if there’s very little money left over after expenses, saving becomes a much longer and harder process. Plus, you need to think about the other costs of buying a house you will need to put some money aside for.

There are lots of little ways to save money around the house, such as reducing the amount of takeaway meals you buy or your entertainment costs. Ensuring you pay your bills on time can save you avoidable late payment fees. Depending on your circumstances, you may also want to consider moving back home or picking up an extra shift or side hustle to make greater savings in a shorter amount of time.

Saving becomes a much longer and harder process if you have very little money left over after expenses.

5. Pay off your debts

If you’re still paying off your car or a personal loan, then you’re paying interest that could be going into saving for a house deposit. Removing or reducing debt expenses from your spending is a sure-fire way of boosting your savings.

Selling or downsizing your car will help eradicate car repayments from your budget, but this isn’t always an option. Instead, experts recommend consolidating your debts to reduce multiple payments and interest rates.

6. Cut up the credit card

Research from Finder shows that a massive 13.7 million Australians currently have a credit card. Undoubtedly, a popular source of ready-money, credit cards can encourage unnecessary spending. They also carry one of the highest interest rates, with an average rate of 19.94 per cent. In addition, 64 per cent of credit card owners admit to paying a late fee.

Credit cards have one of the highest interest rates, with an average rate of 19.94 per cent.

Ditching your credit card starts with bringing the balance down to zero. Start small by rethinking unnecessary purchases or replacing incidental spending with a debit card. Having to dip into your savings for impulse buys makes it easier to say no!

7. Save, save, save

Diligently putting your savings aside as soon as you get paid is the one of the fastest ways to save for a house deposit. It’s a good idea to transfer your savings amount into a separate account from your everyday transactions so it can’t be spent.  

A great house deposit saving tip is to save a similar amount to your expected home loan repayments, so you get an idea of living on that budget.

8. Maximise your savings

Consider a term deposit to help grow your savings. Term deposits are an easy, low-risk option for investing your money at a fixed interest rate. By shopping around, Canstar highlights that you could earn up to 1.95 per cent interest on your savings over a five-year term.  

Term deposits are an easy, low-risk option for investing your money at a fixed interest rate.

9. Track and reward your progress

Many experts recommend breaking large financial goals into smaller, more manageable amounts that can be regularly reviewed. This way, you can track what is and isn’t working in your budget. The sense of achievement you gain as you reach smaller goals can also help you stay focused on saving. 

Don’t forget to reward yourself when you hit budget milestones to celebrate how far you’ve come and to make saving feel less like a chore! 

10. Check your eligibility for government grants

Depending on your circumstances, you may qualify for one of the many federal or state government schemes designed to help buyers into their first home.

These schemes come in the form of grants or concessions. Generally, grants offer variable amounts to put towards the cost of buying your first home or building your first new home. Concessions may cover or reduce duty taxes. Eligibility criteria differs by state, so it’s important to investigate what’s available in your location.

You may qualify for one of the many federal or state government schemes, so be sure to check if any are suitable for your circumstances.

Saving for a house deposit is one of the biggest financial goals most of us set for ourselves.

By putting into practice these tips to save for a house deposit plus adopting ways to save money around the house, you could be putting that deposit down sooner than you think!

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