How Much Money Should You Save Before Buying A House?

I’m keeping with the home buying theme again this week. A question I get asked often is – How much money do I need to save before I can buy a home? My answer is usually – how long is a piece of string?  

Kidding. But, with so much inconsistency between lenders’ criteria – it can be difficult to find the answer to what you think is such a simple question. 

The Great Australian Dream 

It’s the great Australian dream to own your own home. Even now, in this day where the average property price in Sydney is $1 million. Maybe it’s human nature to want what we can’t have? 

Before the GFC in 2005 – it was common for some home buyers to apply for (and receive) 100% LVR (loan to value ratio). Essentially, you could borrow the entire amount of your property’s value.  

That’s not the case these days. After the crash, governments and lenders tightened loan conditions and now require borrowers to put up a deposit to secure their loan – or risk paying that pesky Lender’s Mortgage Insurance (LMI).  

LMI is a one-off payment the lender charges you as insurance against you defaulting on your loan. It’s wasted money – so it’s best to avoid it if you can. 

How Much Money Can You Really Borrow 

When it comes to how much money you can borrow – Each lender is different. Some ask for 10% of the property value, others need 20% before they’ll lend you any money. You’ll find some of the Big 4 banks may even lend up to 95% – pending a solid and secure employment history and documented savings activity.  

But – you will need to take on LMI at this point (it’s added onto your loan amount). We’re talking thousands of extra dollars here, folks. 

Unless you’re willing to pay LMI – I’m afraid you are looking at a 20% deposit saving (and then some). 

Let’s look at the numbers. 

The median house price in Brisbane is now $655,000. Steep.  

If you’re keen to avoid LMI – you’re looking at a 20% deposit = $131,000.  

But, you also need to factor in purchasing costs; conveyancer fees, loan application fees, stamp duty, property transfer, moving costs, building and pest – and having a little bit left over as your safety net once you’re settled.  

How to Save Faster 

If you checked my blog last week, I brought you up to speed with the Australian Government’s latest first home buyer savings booster scheme in the case it gets passed. It’s yet to be finalised – but it’s a start, at least. 

However, there is one fool-proof way for you to save faster. 

Cut back on your expenses.  

Easy, now – Don’t break the messenger’s knees.  

When you commit to an aggressive (but, short-term) budget plan, you can move mountains. Start, by tracking where your money is currently being spent. 

I’m a financial planner, so I have spreadsheets and apps tracking where my money is going and feeding it back to me in a graph. Because, there’s nothing more telling of a budget blow-out than a graph. 

Check out Smart Money’s Track My Spend to get a read of your finances. Then, once you know where your money is going, you can set yourself up for savings success with a realistic and reliable budget.  

Be Reasonable 

Many young first home buyers are desperate to step onto the property ladder, but end up taking on too much debt for their circumstances. There’s no point buying a home if you can’t afford to sustain it. It’s not worth the financial and emotional stress (life’s too short). 

Save hard for as long as you can until you’re in a strong position to purchase.  

If you’re ready, reach out – I’ll help you design the most effective budget for your savings goal.