Table of Contents
Most articles out there are offering you a method of saving for a house deposit that involves eating two-minute noodles and not going on holidays.
This ‘two-minute’ noodle, zero-fun method is ineffective and will make you (and everyone around you) miserable.
While we agree that managing expenses is important, it is more important to have some balance in your life and not miss out on all the fun.
In this post, we will share the deposit kickstart method with you. We will go through it step-by-step.
Now, the Deposit Kickstart method isn’t going to be for everyone, but it has helped over 1000 other Hunter Galloway clients get into their first homes.
Let’s dive in…
How to save for a house deposit
Step 1: Decide a purchase price
This may sound too obvious but stay with us…
If you want to buy a home, you need a deposit, and for you to know how much deposit you need, you need to know what you will spend on that home.
In other words, deciding your purchase price is the first step in determining how much you need in savings.
As Tony Robbins says, setting goals is the first step in turning the invisible into the visible.
When deciding your purchase price, it is a good idea to decide on a lower price and work your way up. This will allow you to have a smaller deposit and get into the market much faster. Follow these steps to determine your purchase price:
- Define the criteria for your ideal home. Note down everything—the number of bedrooms, bathrooms, yard and even the type of home. Make your list as detailed as possible.
- Shortlist up to 3 suburbs you would like to live in. Then visit realestate.com.au and search each suburb based on your criteria. It will show you the median sale price over the past 12 months. Now take the highest median sale price and use it as your guideline of the purchase price.
When choosing a purchase price, remember to set a realistic target. Look at whether or not you can afford the property. As we said above, it is a good idea to decide on a lower price and then work your way up from there.
Read More: Property market research | 12 steps to research a home.
Step 2: Choose a deposit %
You might not know this, but you don’t need a 20% deposit when you buy a home.
Times have changed, and you can now buy a house with as little as an 8-10% deposit.
On the other hand, if you have less than a 20% deposit, you will have to pay Lenders Mortgage Insurance (LMI). LMI can add up to thousands of dollars. But the upside is that it allows you to buy your home sooner.
In my case, I bought my first home with the minimum deposit necessary, so I could get into the market faster than waiting to save up a 20% deposit. That’s why I decided to raise an 8-10% deposit.
Read More: 5 First Home Buyer Myths & Mistakes Revealed
Step 3: Set a Deposit Goal
Like anything in life, having a dream is good, but making it a reality through goal setting is key. In fact, your Deposit Goal is 10 times more important than anything else. Once you have decided on the deposit percentage (8, 10 or 20), it’s now time to set a deposit goal and work back from there.
Here’s the approach that worked best for me:
I wanted to buy my first home for $330,000 and needed to save an 8% deposit. My deposit goal would be $330,000 x 0.08 = $26,400.
On the other hand, if you wanted to buy a $550,000 house and save a 20% deposit.
Your deposit goal would be $550,000 x 0.20 = $110,000.
Purchase Price | x % Deposit | = Deposit Goal |
$330,000 | 8% | $26,400 |
$550,000 | 20% | $110,000 |
Read More: How much home can I afford?
Step 4: Calculate Stamp Duty & other costs
Here there is good news and bad news.
The good news is that if you are a first home buyer, you do not need to pay Stamp Duty in most states.
The bad news is that you do still need to pay transfer fees and other government charges. You can quickly calculate what these look like by talking to your Mortgage Broker or using this calculator.
Since I was looking at buying a home for $330,000, I would need to factor in $872 in government fees.
Realistically, as a first home buyer, you should factor in an additional 1% in other expenses, which is $3,300. This $3,300 would cover things like: government fees, solicitor fees, bank fees, building and pest and other costs.
Read More: 16 Hidden Costs of Buying a Home
Step 5: Work out your Savings Goal
Now it’s time to put it all together.
Add the deposit goal to the stamp duty and other fees to determine your total saving goal!
In my case, it would be $26,400 plus $3,300 to make a total savings goal of $29,700!
Deposit Goal | + Stamp Duty & Other Fees | = Total Saving Goal |
$26,400 | $3,300 | $29,700 |
Now I have a total savings goal of $29,700 to get me into my first home!
Read More: Deposit calculator: How much deposit do I need for a home loan?
Step 6: Set a Monthly Target.
A goal of $29,700 seems like a mammoth task.
But, as the saying goes—How do you eat an elephant? One bite at a time.
How do you save for a home? One dollar at a time.
Take your total Saving Goal and set a monthly Saving Target to make it much more achievable. Determine the number of months you want to have achieved your goal and then divide your saving goal by those months.
For example, if you want to have raised $29,500 in 12 months (1 year), then your saving goal would be $29,500 divided by 12 to give you a monthly saving goal of $2,475.
Saving Goal | / Months Remaining | = Monthly Saving Goal |
$29,700 | 12 Months (1 year) | $2,475 |
$29,700 | 24 Months (2 years) | $1,238 |
$29,700 | 36 Months (3 years) | $825 |
If this Monthly Saving Goal seems too high, consider giving yourself more time. So, rather than 12 months, you can make it 24 months.
Another alternative is to jump back to Step 1 and look at a cheaper property to reduce the deposit required.
If you prefer to set weekly savings targets, just divide by the number of weeks instead of months.
Saving Goal | / Weeks Remaining | = Weekly Saving Goal |
$29,700 | 52 Weeks (1 year) | $572 |
$29,700 | 102 Weeks (2 years) | $292 |
$29,700 | 156 Weeks (3 years) | $191 |
We find matching how you are paid to your savings goal works best. So if you are paid weekly, use the weekly savings goal. If you are paid monthly, use the monthly savings goal.
Step 7: Pay yourself first
This involves having your employer pay you directly to an account that is separate from your day-to-day account. So your money goes straightaway into your savings before you even get paid. After that, you transfer the money you have budgeted to use for living expenses into your day-to-day account., It’s really easy to do. These days, you can jump online and have a new account in minutes, thanks to a lot of online banks. If not, there are other banks that actually let you split your account.
A couple of years ago, I set up a House Savings account which was separate from my day-to-day account. I got my money paid straight from my pay into that account. In effect, I was quarantining my Monthly Savings Goal.
If you do that, you won’t even realise it’s gone, and you will keep living your life and spending (the remaining) money as you wish.
Read More: Barefoot Investor bank accounts explained.
Step 8: Keep your accounts separate
This might sound redundant, considering Step 7, but it is extremely important that you remember this.
Keep your savings in a separate account from your spending account. This is because it is extremely difficult to keep spending and savings separate.
I made that mistake when I was trying to buy a place. I put it all in one account and began to feel a little rich, forgetting that it was money I could not touch.
There are a few banks out there that have reward savings accounts. You put the money in there every month, and they actually penalise you with interest if you take it out. It gives you a disincentive to take the money out, and as you continue to deposit, it grows.
Do whatever it takes to stop yourself from spending your savings.
Step 9: Save on the 1%’ers
100% is made up of a total of 1%’s. If you look at it that way, you will see the importance of saving up on the 1%’ers.
What does that look like?
We can definitely tell you it doesn’t look like eating two-minute noodles. But, instead of buying the super fancy $10 cheese from Woolies, you could buy the $5 one from ALDI. If you cut down like that a little bit, you might be able to save up to $50 each week, which can add up to $200 every month and up to $2400 per year! You see how quickly it adds up?
You can cut back on so many things—the type of tomato sauce, jam, or toilet paper.
Remember, It’s the 1%’ers that can really add up and snowball to help you save with that deposit super fast.
Read more: Positive credit reporting.
Step 10: Cut back on your rental expenses
We have found that rent is the biggest expense for many of our clients. Rent can be 30% to 40% of your total income, so you need to find a way to cut down on this.
Here are a few ways you can cut on rental expenses:
- Try to negotiate for a lower rental with your landlord.
- If you have a spare bedroom, you can rent it out to friends or family or anyone you know.
- You can Airbnb your spare bedroom. It makes good money.
- If renting out your spare bedroom is not an option, you can downsize to a one-bedroom or even a studio.
- Look for rental properties offering free or discounted amenities like parking spots or Wi-Fi.
- If push comes to shove, you can move back in with your parents. This might now be your first choice, but if you’re renting for $700 a week, moving back home would mean $36,000 in savings in one year!
Read more: Guarantor home loans – how to borrow 105% LVR.
Step 11: Celebrate the milestones.
Saving can be very daunting, especially if you are sitting there with a goal of $50,000.
But the fact is, if you want to buy a house, you have to save the deposit. You can’t run away from it.
So how do you make the journey a little more bearable? Once you hit a milestone, celebrate It! If your ultimate goal is $50,000, break it up into 10 bite-sized pieces of $5,000 and reward yourself every time you get to $5,000.
But don’t reward yourself financially for achieving your goal! One thing to avoid on your savings journey is to reward yourself with purchases. While it’s important to celebrate the Milestones, linking pleasure with spending can lead to problems down the road. Instead of buying yourself a gift, create an experience with a loved one.
Celebrating doesn’t need to cost you money. For example, in Brisbane, you can take the family out to South Bank and have a swim – it doesn’t cost anything. You might go to Mount Nebo, Mount Coot-tha—any of those places for a picnic. That’s all very cost-effective.
Do it. It’s Awesome.
Bonus: Tips to reduce your house deposit amount
Short of begging, borrowing or stealing, there are a few other ways you can approach buying a home by getting help from the people around you.
- Look at your brothers, sisters, relatives or friends: If you can’t get in yourself, look at partnering with friends or family.
- Enquire at the Bank of Mum and Dad: Parents are usually always keen to help their children and can help you by being guarantors. Guarantor loans are on the rise, and according to figures from ANZ, the number of parents guaranteeing their kids home loans has increased from 5% to 20% since 2013. Guarantor loans may also help you borrow more than 100% of the purchase price without having to pay LMI.
- Think about Rentvesting: Rentvesting is about living where you want and investing where you can afford. If you can’t afford the dream house or suburb you want, then continue to rent or live there and invest the difference in a property further out. Once you have built equity with that property, you can then use it to buy the property you want.
Bonus: Fast tips to Increase your income
- Make some fast money on Gumtree or eBay: Have a look around the house and sell any old computer gear, phones, or junk you have lying around. You could make a few hundred dollars quite easily!
- Get a side hustle: We all know buying a home costs lots. If you’re finding it hard to save with your current income or living from hand to mouth in your daytime job, think about getting a side hustle like Uber or working at a cafe at night. When I was saving for my first home, I did some website work on the weekends to help bolster my cash savings faster.
- Sell your car. Cars are a depreciating asset and sometimes one of the biggest expenses most first-home buyers have. Do an audit to see if you are really using it that much and if you can consider downgrading to a scooter or looking at public transport or Uber to get around.
Bonus: Suburbs where you can get a home with just a 5% deposit
The federal government’s budget, delivered in late March last year, delivered some good news for aspiring homeowners. The government expanded its First Home Loan Deposit Scheme, now rebranded as the Home Guarantee Scheme, to allow first home buyers to buy a home with just a 5% deposit.
There are some limitations, however:
- Single applicants can only have earned a taxable income of up to $125,000 per annum for the previous financial year.
- Couples can only have earned up to a combined $200,000 for the previous financial year
- You have to be buying a home to live in, not an investment property
- The price is capped, depending on which city or region you’re buying in.
In Brisbane, the Home Guarantee Scheme is capped at $600,000. The median price for Brisbane overall is nearly $800,000, so this price cap limits your options to some degree. But there are still a few suburbs within 20km of the city where you can buy a house for less than $600,000:
Read more: First Home Guarantee Scheme
Talk with an experienced broker to see what you can afford.
Not sure how much home you can afford or how to go about saving for a deposit? Or do you need an expert to walk you through the whole home buying process? Our team at Hunter Galloway is here to help you buy a home in Australia.
Unlike other mortgage brokers who are just one-person operations, we have an entire team of experts to help make your home loan journey as simple as possible.
If you want to get started, please get in touch here, and we can book a phone call information session or a face-to-face meeting at no cost to you. Give us a call on 1300 088 065 or book a free assessment online to see how we can help.
Start again
