It takes the average first home buyer more than five years to save a 10 percent deposit, research shows. That’s why more borrowers are turning to less-traditional money-saving methods to get a foot on the property ladder sooner.
Taking a cue from savvy savers could improve your chances.
With the cost of renting almost the same as paying a mortgage it can be an uphill battle to save the deposit you need to be eligible for a home loan (most lenders will require proven savings of at least 5 percent of the purchase price in order to lend to you).
The obvious solution to reducing rental expenses is to move home with mum and dad or stay with a friend for six to 12 months while you work on your savings fund.
If returning home is not a viable option, there are alternatives that can help you reduce your housing expenses, such as moving to a more afforable suburb, downsizing into a smaller, more afforable property or renting with a few friends to reduce overall costs.
If you live alone and have the space, taking in a lodger can be a great way to help subsidise the cost of renting and give you extra money towards your savings pool.
Before you advertise for a housemate you should check that your landlord is happy for you to share the property and sub-let a room.
The easiest way to find a housemate you can trust is to speak to friends, family or if you’re in a relationship consider moving in with a partner. Otherwise a number of online classifieds exist so you can advertise for free or a small fee. For instance, Gumtree.com.au allows you search for a housemate or even a couch surfer!
Buy part of a property
If finding money for a deposit is holding you back from buying your first or next home, consider sharing mortgage commitments with one or more people to get into the market sooner.
A growing group of Australians are pooling funds to buy a home jointly, enabling them to buy when they may otherwise be locked out of the market.
For instance, two friends with savings of $30,000 combine funds to purchase a $300,000 property and borrow the remaining $240,000. Buying together means they have a 20 percent down payment and therefore may avoid paying lender’s mortgage insurance, which is a costly additional charge for those borrowing 80 percent or more of a home’s purchase price.
A larger deposit can also mean tens of thousands of dollars less interest paid in the long run. Try plugging your figures into a home loans calculator to estimate the costs.
The pitfalls of buying with friends or family can outweigh the benefits, unless all parties share a common goal. So before buddying up ensure you can live together amicably, agree on short- and long-term goals, and have a clear exit plan.
Alex Parsons, CEO of RateCity, said there are some good (and little known) options for first home buyers to support their savings.
“There is a scheme – the first home buyer savings account program, which gives some generous tax concessions and interest rate boosts for prospective first home buyers,” he said.