How to budget when saving to buy your first home

Budgeting to save for your first home takes commitment and financial discipline. But that doesn’t mean there aren’t a few shortcuts as well. We explore how to design the perfect budget when saving for your first home.

1) Have a savings goal in mind

Almost every successful budget begins with a concrete goal in mind. So don’t begin with the aim of simply saving to buy a house. Instead, figure out exactly what type of property it is that you would like to buy.

To do this use a borrowing power calculator to first see what you could potentially afford based on your income and expenses (once your deposit is saved). Then, attend open inspections and auctions and keep an eye on property listings in the area you want to buy.

When you’ve pictured in your mind exactly what it is you’re saving for, you’re much more likely to be able to stick to a budget and achieve your savings goals.

2) Work out how much you need to buy your home

Once you’ve pictured your home in your mind, calculate what size deposit you need to save to buy it.

When you do, remember that you may not need to save a full 20 per cent of the home’s value as a deposit. Many lenders will allow a loan-to-value ratio as high as 95 per cent, so long as you have lenders mortgage insurance (LMI). That means you effectively only have to save a five per cent deposit towards the cost of your home.

Alternatively, you may be able to borrow a lot more than 80 per cent of the home’s value if you have a guarantor on your loan.

3) Find out whether you qualify for a First Home Buyer Grant

It’s not simply saving for your house deposit that you need to think about when budgeting to buy a home. You may also face the prospect of having to pay stamp duty and other upfront costs. However, although there is some good news on this front. Many state and territory governments offer stamp duty concessions for first home buyers so long as their property is under a certain threshold. In fact, in some cases they will waive the need to pay it altogether.

Most states and territories also offer a generous First Home Owner Grant for first home buyers purchasing an off the plan or newly built home. This can represent a significant saving too.

If you qualify, you should factor these into your budgeting, and you may find that you need to save less than you originally thought.

4) Work out the number you’re saving towards

Now that you’ve pieced together the size of the deposit you’ll need, you should have a solid number to save towards.

For instance, if you live in New South Wales and you qualify for the First Home Owner Grant and stamp duty exemption, your number could look like this:

Value of home: $590,000

5% deposit: $29,500

First Home Owner Grant: $10,000

Stamp duty: NIL

Total required: $19,500 for deposit

You should also budget for solicitor or conveyancer’s fees and other upfront costs. If you allowed, say $2,000 to cover this in the above example, you’d need to save a total of $21,500.

5) Give yourself a realistic timeframe for getting there

Now that you have a figure, work out a realistic timeframe for achieving it.

Again, using the same example, you might decide to save the $21,500 across 2 years. That means, if you didn’t have any pre-existing savings, you’d need to put aside $895.84 in savings every month. Is this realistic for you? Factor in any expenses and living costs to make sure it is feasible.

6) Save first, spend second

The next step is to make sure you put this amount away each month. The best way to do this is to pay your savings into a separate account automatically each month before you have the chance to touch them.

One way to make sure your savings can only be used for your home deposit is by taking advantage of the First Home Super Saver Scheme. This lets you salary sacrifice up to $30,000 from your pre-tax income into your superannuation, which you can later withdraw and use towards your home deposit.

This could mean you get to take advantage of the 15% tax rate that applies to super funds, rather than paying your marginal tax rate on income and saving this – although you may have to pay withholding tax when you withdraw the funds.

7) Look where you can cut costs in your budget

With the money left over, it’s time to look at where you can make savings in your budget so that you balance the books and live within your means. Some tips for doing this are to:

• Shop around for better deals on your mobile phone, insurance and other regular ongoing costs
• Cancel all your subscriptions and only renew them when you need to
• Pay your bills on time or upfront if this leads to savings

You should also be sure to pay off any credit cards you owe money on. If you’re only paying the minimum each month you’re probably also paying high interest and this can get in the way of saving.

Read more about saving money for a property.

8) Boost your income

If you’d really like to give your savings and budget a boost, why not try to boost your income. Is it time that you asked for a raise or stated your case for a bonus?

You could even consider taking on a second job, teaching a course or starting a small business. Or host a garage sale where you sell unused and unwanted items.

Just be sure to use any extra money you make towards meeting your savings goals, rather than paying for your living expenses.

9) Keep your eyes on the prize

Finally, when you’re saving for a deposit, there will be times you may be tempted to spend your money or give up. Don’t lose heart. Saving for a home deposit isn’t always easy.

But the rewards of becoming a homeowner for the first time are almost always worth it in the end.