Many Australians who rent dream of owning their own home. But unless you magically win the lotto or discover a lost inheritance, it can be hard to make the transition from renting to homeownership – especially right now, when interest rates are higher than they have been in a while.
So, saving for a home loan deposit while renting may seem like an overwhelming task but it’s a great goal to have - we’d all rather pay for our own home instead of someone else’s if given the choice. And the good news is: it is possible. It just takes some multitasking, and some patience. Buying a house is definitely a long game, but it’s one with a fantastic prize at the end.
And games have levels, right? So, let’s breakdown buying your own home into three easy levels.
Level 1: Understand what you’re looking for
There’s two ways you can play this level. You can either:
- Find your dream home and work hard to afford it, or
- Find a place you like within your established budget.
Either way, the first step is research. Have a look at areas you’d like to live in, look at houses in those areas, and come up with a list of non-negotiables. This list might include things like suburbs, features, and prices. This is where you'll decide your ultimate savings goal (usually 20% of your total cost).
Keep in mind, though, you might have to make compromises. For instance, if you’re looking for a $400,000, three-bedroom house in Sandy Bay with picturesque views of the Derwent River, then you might find that house doesn’t actually exist. If you find yourself in that position, it’s time to get out that list again and really define those non-negotiables.
Level 2: Understand what banks are looking for
Know what a bank looks for before you reach out to them or apply for any loans. Making sure all your ducks are in a row will keep the process nice and smooth. When applying for a loan, to determine your borrowing power, banks will look for proof of:
- Secure employment
- Strong savings history
- Suitable deposit
- Repayment capacity
- Expense history
- Outstanding debt (think credit cards and car loans)
Hot tip: Credit and loan enquiries all contribute towards your credit score and financial history, so be careful when you’re online shopping for a home loan. If you do put in an official enquiry, your lender will ask you to explain the circumstances and the outcome of each enquiry. So, beware the itchy trigger fingers!
Level 3: Act accordingly
Now that you know what you want, and what you need to do to get it, it’s time for action. While you’re renting, it might take you longer to save for a deposit, compared to your peers who are still living with their ‘rents.
But, just because it might take more time, it doesn’t mean it’s not possible. It just requires a little budgeting. Using a spreadsheet, app, or even just a piece of paper if you’re old school, you can make a simple budget that will get the job done. Consider rent, student loans, and other bills, and make sure to include a bit of treat money for yourself. Then simply dedicate any leftovers to your savings for a home deposit.
Hot tip: You can keep things even easier by setting up an automatic transfer that deducts a set amount of money from your every day spending account to a designated savings account. Then you don’t even have to think about it!
But maybe you’ve crunched the numbers and found saving might be a bit harder than you thought? Check out our blog ‘Why is saving difficult, even if I really want to?’
It might seem impossible to save and rent, but by taking small, educated steps you won’t just have to look at your dream house through your Pinterest board. And remember: there’s no better time than the present.
Please note this information is general in nature and does not take into account your personal circumstances or objectives. You should consider this before acting on any of the information contained.
