Guide to Saving for A Home Deposit

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  Are your savings genuine?  |    Deposit Saving Tips 

 

When property prices are rising it can feel like you’re getting left behind. At times like this, saving for your first home deposit can seem like a never-ending task. But worry not, we’ve pulled together the following information to help you consider options to help you save for a home loan deposit.

 

How much do I need to save for a home deposit?

Now this varies depending on each lender’s requirements. While you can get on the property ladder with as little as a 5% desposit, there are reasons to continute saving to the 10% and 20% deposit marks, as you'll avoid paying extra fees and may also benefit from a wider range of lenders and more competitive interest rates.

Why save a 20% deposit?

Lower repayments

Assuming the loan term is the same, if you pay more deposit the loan amount would be less. This could mean that the fortnightly or monthly repayments will be smaller.

Lower interest rate

If you pay more deposit the Loan-to-Value Ratio (LVR) of your home loan will be smaller. As mentioned above, some lenders may offer a lower interest rate if the LVR is below 80%.

Lenders Mortgage Insurance (LMI)

If you have a deposit of less than 20%, Lenders Mortgage Insurance is usually required. For home loans with a deposit of 20% or more, LMI is not usually required which could be a reason to save up a larger deposit.

How to get a home loan without a deposit

Although you'll need to put a deposit towards a property (unless you're refinancing in certain circumstances), some lenders do offer mortgages starting with as little as a 5% desposit. This is usually the minimum you'll need to contribute towards a property, however you'll have more loan options when you save up a 10% or 20%+ deposit.

So, what exactly is Lenders Mortgage Insurance (LMI)?

LMI

LMI ensures that the lender is covered for any shortfall if you default on your loan and the proceeds from the sale of the property is not enough to pay off the loan in full. It’s important to note that the borrower(s) and any guarantors are still liable to pay the shortfall to the insurer.

The LMI fee is usually calculated as a percentage of the loan amount and can be paid at settlement or may be able to be added to the loan amount.

 

How can I save for a home deposit?

First things first, understanding exactly where your money is going every single month is key when saving. Being disciplined can help, too. Here are some strategies to consider that could help boost your home loan deposit. 

 
Create a budget

A handy way to track daily spending is to create a comprehensive budget. Tracking daily, monthly, and annual expenses, can help identify areas where savings or changes could be made. A budget may include regular subscriptions, expenses and outgoings – and can even include a small savings goal – for example, putting a small amount aside amount each month for ‘one off’ expenses like clothes or a trip away. 

Want to learn more about how to create a budget? This article from ASIC MoneySmart provides easy steps to plan and manage how you spend your money. If you’re self-employed, you may already be reviewing the budgets for your business – in which case, read our article: Budgeting tips for the self-employed.

 
Review your existing debts

Existing debts will be included by lenders when calculating how much money you have available to pay off a home loan. So not only could you be spending your income on interest repayments, but this existing debt could also affect your chances of getting a home loan in the future.

Examples of debt could include credit card payments, car loans, personal loans, student loans, school fees and any other long-term expenses that you pay on a regular basis from your regular income.

If you review your existing debts as well as creating a budget, then you might be able to save up a deposit more quickly.

Want tips on how to reduce your debts? If your credit card debts are causing you a headache, then then our tips on cutting down credit card debts could help.

 
Be strict with your savings

Is the urge to splurge affecting your ability to save? One possible way to avoid the temptation of spending your pay is to transfer money out of your daily account, into a separate savings account. This measure could also help you create a budget – if you only have a certain amount to spend every month, then you may need to plan your incomings and outgoings more carefully to avoid going into the red.

Taking this a step further, you might choose to have multiple savings accounts – each with its own purpose. For example – an easy-access savings account that can be easily dipped into for unexpected bills or emergencies, as well as a higher-interest savings account for longer-term savings. This combination could help with everyday cashflow and assist in future savings for your home loan deposit.

 
Consider temporarily downsizing

Another way you could look to put away some extra savings is to re-evaluate your fixed outgoings, such as your rent. When trying to save for a home loan deposit, some options for renters could include downsizing or moving into a cheaper property, sharing the rent with a house mate, or even to consider moving in with family to save on rent.

While this may seem to be dramatic lifestyle shift, the cumulative savings over six to twelve months could be significant and might supercharge the deposit for your home loan.

Looking for more ways to save your home loan deposit? The ASIC MoneySmart website provides some great strategies to help save for that all important deposit.   

 

What’s the difference between genuine and non-genuine savings?

Let’s now assume that you’ve done all the hard work and that you’ve saved your home loan deposit. So, it’s all your money, right? Well… certain lenders may see things differently. It’s important to check where the savings have come from and how they may be viewed by certain lenders.

Lenders all have varying definitions as what constitutes ‘genuine’ versus ‘non-genuine’ savings. As a rule of thumb, genuine savings are:

Savings that that have been held in the borrower’s account for at least three months to six months

Savings that that have been held in the borrower’s account for at least three months to six months

The ability to show regular transactions into ‘savings accounts’

Shown as regular transactions into a ‘savings account’

Lenders will also check whether you can meet your regular financial commitments without dipping into your ‘genuine’ savings.

 
Are shares and stocks considered genuine savings?

Some lenders may consider publicly traded shares to form part of genuine savings if they held in one of the borrower’s names.   

 
What are non-genuine savings?

Savings may typically be considered ‘non-genuine’ if they have not been in the borrower’s account or held for at least three months. This often occurs when receiving a lump sum inheritance or funds from the sale of a large asset, like a car. These ‘non-genuine’ savings may still be able to be used towards a deposit if they are left in a savings account for at least three months. However, this does vary between lenders. 

Keen to find out where you stand?

Keen to find out where you stand?

If you’d like to find out how much you could borrow with Pepper Money with your home loan deposit, then check out our borrowing power calculator.

Or if you're ready, you can get in touch with a Pepper Money Lending Specialist to discuss your home loan options on 137 377 or enquire below.

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