To buy a house you first need to save for a deposit, but there is more to this to consider!
The first step towards home ownership involves a lot of planning. From saving to researching, this 7-step guide is designed to take you through the steps to reaching one of life's big moments.
1. Work out your deposit target
The first step towards getting your own home is saving for the deposit. Having a good habit of saving and budgeting is the best way to get going. But it can be hard knowing exactly how big your deposit should be.
Take a look at the area you hope to buy in, recent sales prices and the average percentage price increase year on year. That will give you a good idea of what you need to aim for. The minimum deposit to take out a Pepper Money home loan is 5 per cent of the total purchase price of the property. This amount will vary depending on how much you’re borrowing and the type of loan you are applying for.
Have a look at this online saving calculator from MoneySmart to see what you need to save each month over different timeframes to work out how long it will take you to reach your goal.
Tip: It is always a good idea to set aside a 20 per cent deposit not only to ensure that you have enough money to cover the additional fees and charges associated with your loan, but also to avoid paying a risk fee. Learn more about deposits for buying a property here.
2. Start your budget
If you don’t have a monthly budget already then now’s the time to work out exactly where your money’s been going – and where you want it to go. Sounds simple but it is the heavy lifter when it comes to saving up for deposits. It’s only when we see how much gets spent on coffees, drinks or takeaways, that many of us realise we can start to keep some money back each month. Here is a simple guide to budgeting that works.
For more handy resources, check out this budget planner from MoneySmart. What do you think you can save on each week?
3. Think about ways to earn more money for a while
You are never too old to babysit, or take on an extra job doing something like house cleaning or gardening once a week. Or you can sign up for being available to do household work on Airtasker. It will keep you busy when you might otherwise be spending money and it’ll really help that deposit grow faster. If there are two of you saving – like maybe a friend saving for something they want – work out what you can do as a team. It’ll be more fun and you can help motivate each other.
4. Get credit ready for the lenders
When looking to buy a home, it’s really important that your credit history is in as good a shape as possible. First, pay off any outstanding debts if you can. Clearing your debts plus a history of regular savings in your bank account, combined with a good record of employment, will really help you secure a home loan in the future. It’ll also stop you paying over big sums in interest; credit card debt eats up money, so clear it.
Second, check your credit rating. What is a credit rating? Companies that give credit (like banks, insurance companies and power companies) want to know if you have a good financial track record. Credit agencies collect that information to help those companies make decisions about lending to people. They gather information about your credit history and, on the basis of what they find, they give you a credit score – a number between 0 and 1,000. Most credit scores are between 300 and 850. The higher the score, the better your credit rating is. You can find your score for free online.
Have a look at the report and make sure everything is accurate. If you see any mistakes, now is the time to correct them. If you’ve never applied for credit, you probably won’t have a credit score but most people have a credit history of some sort.
If your credit history looks good by the time it comes to apply for your home loan, you’ll have a better chance of securing it. So in the time between now and when you apply, don’t fall behind on bill payments or add any new debt.
5. Understand the costs involved in buying a home
There are lots of small extra expenses and fees that are part and parcel of applying for a home loan. These have the potential to add up, so it's super important to do your research into the details of any offer you look at.
Some of the hidden costs could include establishment fee, legal fee, monthly administration fee, risk fee and more. To learn more about the costs of buying a home click here.
6. Get a feel for the market
Other important things to think about are the average price for where you want to live and home loan interest rates – both of which can change in a year. You could also think about going to some property auctions, without bidding of course, so you can get a feel for how the market is going.
7. Decide if you need expert advice
Expert advice is another potential cost, but there are benefits in getting help. Whether it’s a buyer’s agent, accountant or real estate broker, their knowledge and specialisation could save you money in other areas – not to mention guiding you through some of the more technical aspects of buying a home.
Ready to take the next step? Try our borrowing power calculator to find out how much you could borrow with Pepper Money. Alternatively, talk to one of our Pepper Money Lending Specialists on 13 73 77. We have the widest range of home loan options in the market – from regular loans [called Prime loans] through to specialist loans for people who might have credit history issues or who doesn’t have the usual earnings history.
All applications are subject to Pepper's normal credit assessment and loan suitability criteria. Terms, conditions, fees and charges apply.
This article provides you with factual information only, and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Neither Pepper nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in this article. For information about whether a Pepper loan may be suitable for you, call Pepper on 13 73 77 or speak to an accredited Pepper Money broker.