what does it take to become a home owner?

How much do you need to save, how do I save it, and how much time does it take?

These are just some of the many questions we have asked ourselves, and have also received from others over the years.

It’s the Australian dream; owning your own home. But just how attainable is it when house prices continue to rise and wage growth remains stagnant.

We’d love to see everyone one day own their own home, and this article is designed to act as a bit of a guide to help you on your journey.

Of course, everyone’s circumstances are different, and if you’d like some advice that is personalised to you individually, reach out as we’d love to help out.

The below assumes that you are a first home owner and therefore eligible for both the first home owner’s grant of $10,000 as well as the full stamp duty concession.

How much money do I need? What should my budget be?

An easy question to ask, but one with a bit of a complex answer. It all depends. What do you want to buy, what’s your budget, how much do you earn (and have saved or can save), and what is your capacity to repay?

Let’s start with the first sub-question – what do you want to buy?

 Is it for investment, or to live in? In any case, set a strategy – are you looking for capital growth, something that will remain relatively constant in value, or if it’s for investment, something that is high yield. Existing houses, or new house and land packages, often see higher capital growth than an apartment.

How do you set a property budget?

Well, this ties into the last two points. Unless you are paying for a property in cash, you’ll need to borrow. Assess your income, expenses and then see what room you have in terms of repayment capacity – check out this borrowing capacity calculator.

Once you have an understanding of how much you can borrow, now you can get a better idea as to what your budget likely is. A thing to note, however, is that just because the bank says they’ll lend you up to a certain amount, doesn’t mean you need to borrow that much. There may be suitable properties for you that won’t require you to max out your borrowing capacity, making it easier for you to repay (and even pay off sooner). Think about what might happen if your financial circumstances change, would you still be able to service such a high debt? Perhaps a conservative approach is best.

How much cash do I need for a deposit?

Now that you have an idea as to how much your bank may lend do you, and therefore what kind of properties you can purchase, now it’s time to understand how much cash you need upfront.

10% of the purchase price is a common figure in the market – but this can be a difficult number to achieve if you’re like most people with rent, personal loans/credit card debt, car loans, and other monthly expenses which make it difficult to save money.

Having high amounts of personal debt may impact your ability to secure a home loan, and therefore it’s a good idea to think about paying down your personal debt before buying a home – it also shows the bank that capable of meeting loan repayment obligations.

Keeping in mind that as a first homeowner you’ll receive the $10k grant from the Victorian government, a good thing to do is check your eligibility for the federal government’s first home loan deposit scheme, allowing you to enter the property market with as little as a 5% deposit.

Banks will charge you something called LMI if your deposit is less than 20% (unless you take up the first home loan deposit scheme), though in my opinion that should not deter you. One thing to keep in mind when it comes to choosing a property to buy is that there are some very risk adverse banks – they may not lend in certain areas, developments or for apartments under a certain size, or they may have a requirement that your deposit be at least 20%. Chat to them before making any commitment to purchase so you are fully aware.

Next, develop a strategy – pay down your personal debt, and also keep putting money aside each pay and stick to it. Open up a savings account with another bank, and put your savings in there instead – out of sight and out of mind; it’ll help you resist the temptation to buy that new TV or go on another holiday just because you can see your money start to grow.

If you have debts from multiple sources, then consider consolidating into one loan with one repayment, and if you can, pay more than the minimum.

The best advice one can give regarding debt and saving money is a simple one – live within your means. In the world of Gucci this and Balenciaga that, try to see the bigger picture – your house will likely be your biggest asset, and no amount of temporary satisfaction from a luxury purchase can replace the feeling of comfort you get in knowing that you’ve got a brick-and-mortar investment to rely on.

Do the hard work now, so you can live it up later.

Buy a money box – each time you have spare coins in your wallet, put them in. Keep doing this for months. It’s a small and easy way to save a few hundred dollars over 6 months without even noticing. Each time you get paid, transfer money into your separate savings account and forget that you have it. Keep this up. Before you know it, those hundreds of dollars will turn into thousands. It may take time, but then again, Rome wasn’t built in a day.

Once you’ve reached your deposit goal, now it’s time to think about the ancillary expenses – you’ll need a conveyancer or other legal representative to assist in any property transaction, so budget for anywhere between $700-1,500 for that. Stamp duty should be $0 (unless you are purchasing something over $600,000). Now consider that at time of purchase you’ll need to pay for council rates and other property-related fees, so possible put aside anywhere between $2,000-3,000 for that. Don’t forget moving costs, perhaps up to $1,000, and then, if you don’t already have furniture, the costs for that, which naturally varies depending on what you need and the quality. However, if you’re on a budget, then Ikea, Fantastic Furniture and Amart are your friends.

It’s really difficult to come up with a blanket approach to saving for purchasing a home – everyone’s circumstances are different. Hopefully this has given you something to consider and perhaps some motivation to accept that the pathway to home ownership is an option for you, albeit one that requires dedication and perseverance.

Ready to buy? Chat to the Banksia team about off-market opportunities – we might even be able to get you a rebate.