5 tips when saving for a deposit to buy your first home

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The plateau continues for the housing market in Christchurch and Canterbury - reports indicate that house prices are currently having their lowest growth since 2012, and analysts predict that this will not change any time soon.

One very obvious sign is the oversupply of homes in suburban areas that have left hundreds unoccupied.  When driving around you can spot them; lights out, curtains open at night and no cars in the drive or toys on the lawn.  This somewhat odd situation has followed enormous pressure on housing in recent years but it’s a good illustration of the peaks and troughs of real estate. 

On the other hand, there are many other good economic signs in Canterbury. The latest data shows unemployment in the region remains low.  As of July 2017, this sits at 4.6%, the lowest in more than seven years, meaning more people are enjoying the benefits of a steady income.

Coupled with the sluggish house market, these are good signs for first home buyers. If buying your first home is top of mind, then there’s no better time than now, but first you need to start saving for a deposit.

In New Zealand, deposit levels are still 20%, a huge commitment that needs careful planning. Whether you are doing this by yourself, with your partner or friend, it’s important to have proper goals, seek expert guidance, and find the most ideal ways to achieve your objective.

If you’re dedicated to saving for a deposit, then take note of these handy hints: 

1.    Analyse your financial situation

The first step is evaluating your finances, whether you are saving by yourself or with another. This provides you with the clearest possible picture of your financial standing, which means all sources of income, expenses, debts such as credit card payments, and savings.

After completing the review, you’ll know how to handle your finances and prioritise saving. You’ll also gain an idea of whether or not saving for a 20% deposit is an attainable goal.

In case it isn’t, you could consider applying for a Welcome Home Loan that requires only a 10% deposit instead of the usual 20%, but please note this isn’t available to everyone.

2.    Set your deposit saving goals

After reviewing your finances, the next step is for you to know the kind of home you want. There is no harm in thinking about your dream home—it’s actually one of the enjoyable aspects of house hunting.  But at the same time you have to be practical when it comes to goal-setting.

One of the most useful approaches to setting goals is to follow the SMART technique, which stands for:

S – Specific – goals that have detail
M – Measurable – they have a value
A – Attainable - considering your current circumstances
R – Realistic – be practical – could you give up some spending
T – Timely – give them a deadline

If your goal meets all these criteria you can then measure your deposit saving achievements as they progress, and celebrate along the way.  For instance, you may want to have a small party for every $10k saved – after all, it can’t all be hard work!

Remember the best approach is to balance what you would desire in a dream home with what you can afford, so that saving up for it becomes easier because you’ve already set the right goal.

3.    Settle all your debts

Once you’ve looked at how to budget for savings, it’s time to move on to your financial obligations. When lenders go over your mortgage application, they’ll look at two things: your savings and your debts. It’s of immense importance that you cover both bases because it increases the chances of your loan getting approved.

Even before you apply for a loan, pay off everything you owe from credit cards, auto loans, and any other personal loans. This will show lenders that you can manage your finances well and that you are serious about buying a home.

In New Zealand, a lot of first home buyers will still have student debt but as long as this is managed well with regular payments, a lender will take this into consideration when you apply for a home loan.

4.    Pool your resources and set your budget

You’ve set your goal; now it’s time to pull all the stops out to make sure you have complete focus on a deposit.  At this point, there are no other priorities – the more sacrifices you make on spending the quicker you will have your deposit.  So make a savings plan and see it through.

First step is to combine all your savings (including your partner’s if applicable) and put it into just one high-yield savings account. Set up your payroll to transfer a certain amount to it every pay day and make top-ups when you can.

Discipline is the key to saving and this means not touching it under any circumstances.  Many people will feel they still need to live life with some luxuries or adventures while saving, but the more you do this, the longer it will take to amass a deposit.  It will be difficult at times but rewarding once you have achieved certain savings goals, including the final big one.

5.    Find any opportunity to save

When you start saving for your deposit, document each and every expense—no matter how small—over the period of at least a month, preferably two or three, and you’ll discover plenty of opportunities to save. Here are some ways to add to your savings.

  • Don’t impulse buy and spend too much on luxuries and unnecessary items – analyse every purchase and ask they question, “do you really need it?”

  • Cook your own meals and eat at home, and don’t eat at restaurants or order take outs

  • Limit trips to cafes - you’ll be surprised how the cost of flat whites accumulate over time – one coffee per working day, each year, will cost over $1,000.

  • Avoid going out unless you absolutely need to – buy a crate of beer and some wine and invite friends around instead of going to the pub

  • Stop buying lotto tickets

  • Buy the cheapest groceries you can – and don’t buy gourmet

  • Sell things you don’t use anymore – TradeMe is a good way to do this

  • Likewise if you need to buy things, look at second hand or even op-shops – you will be amazed at what you can find, and it can be fun too

  • If you have time, a second job can help the savings goal, even if it’s only for a few months

  • If you are a two-car couple consider selling one and surviving with the other

  • Use your bank’s mobile app to transfer money quickly and on the go – even if you decide not to buy a coffee, put that $4.50 into savings – it will add up

You will need all the support you can get if you are saving for an $80k deposit on a $400k home.  So it’s a good idea to let family and friends know so they won’t be surprised if you turn down an invite to go skiing or out for lunch, unless they’re paying of course!  It may also be the case that family could help with the deposit.


Talk to a mortgage broker

A mortgage broker can provide you with indispensable advice as to the best course of action to take to save for your deposit. With his or her assistance how to save for a deposit and then buy your first home will become clearer.

So, what are you waiting for? Get in touch with a mortgage broker at Taurus Home Loans today. We love nothing more than helping people get the keys to their first home.

 

Paul Townsend 
Mobile: 027 352 6262
Phone: 03 366 6087

Website: http://www.taurushomeloans.co.nz/contact/ 

Posted 21 Dec 2017