With skyrocketing property prices and the growing cost of living, you might feel like your dream of owning your own home is slipping away.
It’s definitely not easy, but Australians are still managing to buy houses, and women are saving for a deposit faster than men.
In this article, we’ll give you a rundown of things to know and point you to a few handy online resources so you can get started on the journey to buying your own home.
Are you ready?
Buying a home is a big deal. It can be an exhausting process in today’s market, and of course, it has the potential to put you under financial stress. Before you commit to buying a home, ask yourself the following questions:
- Do you have a steady income and job security?
- How long do you intend to keep the property you buy?
- Are you willing to make lifestyle changes to save for a home? This might mean no more overseas holidays!
- Do you have any debts or loans that need to be paid off before you take out a home loan?
- Do you think you’ll be able to pull together money for a deposit and the upfront costs of buying a house - like stamp duty?
Check out Finder’s preliminary lifestyle check for a list of things you should consider before searching for a home.
Take a look at property prices
While the prices around now are likely to change a bit by the time you actually start going to auctions, it’s helpful to know what’s out there. Domain’s Home Price Guide can help you get an idea of property prices in particular streets. It even breaks down property size, proximity to schools and areas of interest, and gives you similar properties.
Figure out what is important to you in regards to a home; these could be things such as:
- Do you need to live close to a school?
- How far are you willing to travel to work every day?
- Do you need public transport options?
- How many bedrooms do you need?
Now that you have a general idea of how much you need to save, you can develop a budget, or if necessary, make some compromises on your dream home such as location or size.
Work out what you can afford
Like with all savings goals, you need to know where you’re currently at and how much you can put away every week. Where is your money going? Where can you cut down your spending? ASIC’s TrackMySpend app is a useful tool for tracking your expenses, but you can also sit down with your bank statements and do it manually. You’ll then be able to work out how long it will take you to save for the deposit and what kind of home loan repayments you’ll be able to make.
Saving for the deposit
The more you save for the deposit, the better. It’s generally recommended to save a deposit of 20% or more of the purchase price of your home to avoid paying lenders mortgage insurance.
You’ve done your budget, so you know how much you can put towards your home each week. Consider opening a high interest savings account for yourself and setting up an automatic transfer to it every pay day.
In order to save faster for the deposit, you might find you need to make some changes to your lifestyle. These could be as drastic as giving up your car and taking public transport, moving back home, or into a share house to save on rent. Obviously, it depends on what sacrifices you’re willing to make for your first home.
Taking out a home loan
Home loans help you fill the gap between all the money you’ve saved for your deposit, and how much your house actually costs. It involves borrowing an approved amount of money from a lending institution such as a bank, credit union or building society, and it’s important to choose the right loan for you.
There are different kinds of home loans, but most people take out a principal and interest home loan, where you repay the amount you borrowed (the principal), as well as interest. When taking out a home loan, be sure to do your research and compare a few options.
For detailed information on home loans, head to MoneySmart’s guide to choosing a home loan. There, you’ll also find a mortgage calculator designed to help you work out how much you can borrow, how much your repayments could be and how you can repay your loan sooner.
The extra costs of buying a home
There are a few costs that people often overlook when saving to buy a home, but it’s important to remember them. These extra costs include building inspection fees, pest inspections, solicitor fees, loan application and property valuation, stamp duty and even moving costs. To calculate your stamp duty, try the State Revenue Office calculator if you’re buying in Victoria (other states can find a list of calculators here).
A non-traditional method
Research by ME Bank found that Australians are adopting alternate strategies in order to enter the property market, including buying with friends, asking their parents to act as guarantor, or a new method coined ‘rentvesting’.
Renvesting involves buying a property as an investor while renting a place to live. This is allowing more Australians to buy in more affordable suburbs and enter the property market, even if they aren’t anywhere near their work or family. To find out more, read ME’s article.