6 October 2019

How much do i need to save to buy my first home?

Pat Carbone
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Buying your first home may be the biggest step forward you’ll ever take from a financial perspective. It could also provide a much better lifestyle and sense of security than renting. Taking that first step can be a huge challenge, with the median house price in Australia currently over $500,000, so you’ll need a sizeable chunk of savings in the bank to make it happen.

To make your life a little easier, we’ve answered some of the most common questions about saving to buy a first home.

HOW MUCH DEPOSIT DO I NEED TO SAVE?

As a general rule, you should aim to save a deposit that’s equal to 20% of the value of the home you want to buy. If you’re buying a house at the median Australian house price (according to CoreLogic), that’s just over $100,000.

WHAT IF I DON’T HAVE A 20% DEPOSIT?

You may be able to secure a loan with a deposit as small as 5% or 10%. However, it is worth noting that this may come with several extra costs and drawbacks:

  • You may have to pay Lender’s Mortgage Insurance (LMI) – a one off fee paid to a third party that insures your lender in the event that you default. LMI can cost more than $10,000 if you’re buying a $500,000 home.
  • Since your deposit is smaller, your mortgage repayments will be larger and your loan term may be longer, meaning you could end up paying more interest on your loan and more overall for your property.

If you’re super keen to get a foot on the property ladder despite having a deposit of less than 20%, seek expert advice from a mortgage broker to ensure you’re aware of all the extra costs and implications of doing so.

WHAT ARE THE EXTRA COSTS WHEN BUYING PROPERTY?

Buying property costs a fair bit more than the purchase price. In addition to your deposit, you’ll need to save to cover costs like:

  • Stamp duty: this is often discounted for eligible first home buyers. The cost of stamp duty varies depending on your location, your circumstances and the property you’re buying. There are handy online calculators that can help you get an idea of how much yours may be, or read our handy guide on Stamp Duty.
  • Conveyancing fees: lawyers fees should cost between $870 and $1,900 depending on your location and the legal complexity of your purchase.
  • Building inspections: for smaller houses in metro areas, building inspections can cost as little as $200. For larger homes or more remote areas this cost may increase to $500 or more.
  • Insurance: home and contents insurance is a must-have for all property owners. This cost varies from state-to-state and according to the location, build and value of your home, but generally you can expect to spend from $850 to $1,500 a year (unless you’re in Northern Queensland where premiums can be well over $3,000).
  • Mortgages fees: Finder estimates that you’ll be charged between $200 and $700 in fees to establish your home loan, depending on its size and complexity.

These are just a few of the costs you might run into when buying. You should also budget to cover moving, any renovations you want to do right away and the cost of buying appliances and furnishing your new home. It’s always smart to have a generous cash buffer in your savings account just in case unexpected costs come up.

AM I EARNING ENOUGH TO SERVICE A MORTGAGE?

When you apply for a loan, you’ll have to prove your income. If you’re not earning enough, your loan application may be denied, putting a spanner in the works of your home buying dream. Recently, Canstar research shed some light on roughly how much you need to be earning to buy:

  • $1,000,000 home: annual income of $160,611 or more
  • $800,000 home: annual income of $128,395 or more
  • $700,000 home: annual income of $112,363 or more
  • $600,000 home: annual income of $96,526 or more
  • $500,000 home: annual income of $80,439 or more
  • $400,000 home: annual income of $64,401 or more

If your mortgage repayments exceed 30% of your income, you may experience mortgage stress, so try to make sure your repayments are below that level.

WHAT ABOUT THE FIRST HOME OWNER GRANT AND STAMP DUTY CONCESSIONS?

Buying your first home is hard but you’re not alone. You may be eligible for a First Home Owner Grant of between $7,000 and $20,000, depending on the value and location of the property you’re buying. You may also be eligible for a discount or even a complete exemption from stamp duty – check out our article on stamp duty for a clearer picture of how it will work in your state or territory.

Buying your first home is a huge challenge, but people do it every day and so can you. Make sure you know what’s involved, get all the expert advice you can find, save hard and you could be walking in the front door of your own home sooner than you might think.

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