Many first home buyers believe they can’t get started until they have a significant amount of money saved for a deposit. This is untrue. The most successful first home buyers I have worked with have all laid the groundwork for their purchase months and even years in advance. Here are three things you can do right now, even if purchasing is still some time away.
Speak to a broker
This should be the first thing you do. A broker will be your guide; they can give you an accurate picture of how much money you actually need for a deposit. This is often less than you may think. They can break down all of the other costs involved such as government fees and charges and stamp duty. A good broker will also be across all government schemes that you may be eligible for and can discuss the pros and cons of using each one. They can accurately calculate your borrowing capacity, allowing you to narrow down a realistic location and style of property that is within your budget. Lastly, brokers can connect you with other trusted advisors such as conveyancers, buyers agents, and accountants.
Begin researching the areas where you would like to purchase
Buying a home is scary, especially your first home. It’s not like going into a store where the price is clear for all to see. There is a certain amount of skullduggery involved. Ultimately, the real estate agent is there to get the maximum price they can for their vendor so you cannot rely on the price guide. For first home buyers, this can be daunting, how do you accurately value a property? Well, this is more of an art than a science, but by spending enough time viewing similar properties this should become easier and clearer over time.
Instead of relying on the agent’s price guide, I would recommend looking at the most relevant comparable sales. Consider the key property features such as land size, number of bedrooms and bathrooms, outdoor space, aspect, and interior quality. If looking at an apartment, it is important to measure the underlying land content. Are you purchasing in a block of 8 on 800 square meters? If so, you effectively own 100 sqm of the underlying land. If though you are purchasing on the same 800 sqm land size, but there are 50 apartments, then you only own 16 square meters of the underlying land. I would recommend tracking all of this on an excel spreadsheet. Over time, you should get a sense of what fair market value is, and more importantly, what the property would be worth to you.
Make sure your savings are working for you
I have previously written about the First Home Super Saver Scheme which is a tax effective way of increasing your deposit savings and minimising your tax payable. At the time of writing, it also pays an interest rate c1.5% above the best savings rate currently available. You can find full details of this scheme here.
If though you are keeping your funds in a high interest savings account, then it pays to shop around to ensure you are on the best rate. Also ensure you understand and can meet all conditions involved in obtaining the rate. For example here are three different sets of conditions at three different lenders:
- Deposit $1,000 per month
- Deposit $1,000, make 5 transactions, and & your balance must grow each month.
- Deposit $1,000, make 5 eligible purchases, and & you must be over 36 years old.
You can see here how each of these vary, and missing one of these conditions will mean you make no interest that month. Not ideal.
As a final point, when saving for a deposit it generally isn’t recommended to have your funds in volatile assets such as shares or cryptocurrency. Even the safest of shares can have some market volatility. The last thing you need is to lose 10% of your deposit, just as you are ready to buy.
